This is a guest contribution by Damien Hoffman, editor of the very popular Wall St Cheat Sheet blog.

This may sound like common sense to investors and traders, but most people - including policy makers - do not readily accept the flawed nature of economic models.

Thank goodness we have professor David Colander testifying to Congress in order to enlighten an otherwise dim room. Colander’s work at Middlebury College focuses on the incentives and work-product of economists. His work has become increasingly more important as economists have heavily influenced policy making in recent years.

In addition to exposing a few absurd underlying economic presuppositions such as “individuals behave with rational self-interest,” Colander is helping shift incentives for professional economists away from publishing toward engaging in more useful studies.

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This is a guest contribution by Damien Hoffman, editor of the very popular Wall St Cheat Sheet blog.

This may sound like common sense to investors and traders, but most people - including policy makers - do not readily accept the flawed nature of economic models.

Thank goodness we have professor David Colander testifying to Congress in order to enlighten an otherwise dim room. Colander’s work at Middlebury College focuses on the incentives and work-product of economists. His work has become increasingly more important as economists have heavily influenced policy making in recent years.

In addition to exposing a few absurd underlying economic presuppositions such as “individuals behave with rational self-interest,” Colander is helping shift incentives for professional economists away from publishing toward engaging in more useful studies.

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Do you remember the first time you saw a rain drenched Peter Finch scream, “I’m as mad as hell, and I’m not going to take this anymore!”? We do. We were too young to see Network in the cinema (the movie came out the year we were born: 1976). Instead, we watched it late one night on TV. And we’ll never forget the moment when Finch’s character, news anchor Howard Beale, arrives in the television studio in his tan raincoat with a deranged look on his face and begins to speak to camera.

I don’t have to tell you things are bad. Everybody knows things are bad. It’s a depression. Everybody’s out of work or scared of losing their job. The dollar buys a nickel’s worth; banks are going bust; shopkeepers keep a gun under the counter; punks are running wild in the street, and there’s nobody anywhere who seems ...

With its regulatory overhaul of the U.S. financial system, the Obama administration has granted the federal government new powers to take over systemically important businesses, but has done so in a way that may well mask a potentially dangerous drift toward American state capitalism.

The administration’s 88-page “white paper,” released last Wednesday (June 17), goes a long way in identifying most of the weak links in the regulatory chain that was supposed to protect America from a financial freefall. But, as always, the devil is in the details.

In 85 of those 88 pages, extensive fixes are put forth in an attempt to create additional financial institution transparency, to bolster consumer protections and to enhance supervisory oversight. But, in fewer than four of those pages, without any detail, the white paper calls for a  “regime” to “provide for the ability to stabilize a failing institution by providing loans, purchasing

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We made a brief trip back to France for a board meeting. Returning to London, people all seemed to be in mourning. Black is the color in London. Everyone wears black. Black pants, black skirts, black coats…

…the cabs are black…and so is the mood.

Last week, the Bank of England and European Central Bank announced new initiatives aimed at putting some brighter colors in the economy. Both banks are going to take up forms of QE – quantitative easing.

Whoa…don’t touch that dial! (A reminder for younger readers: TVs and radios used to have dials, which you turned to change the channel. Announcers would begin with ‘Don’t touch that dial’ when they had something important to say.)

We’re not going to discuss QE – promise!

On Friday, for the benefit of new readers, we were trying to explain The World According to The Daily Reckoning. Today, we continue our explanation –

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I don't usually read Bill Kristol's column, but once in a while, my eyes get caught by a headline (that's the difference between reading online and "on paper"), and I'll check out what he has to say. The other day, I read his column "Admit we don't know" on the current economic crisis that, while not in my mind "wrong", seemed puzzling to me. Pay attention to the last paragraph (highlighted in bold).

...basically, it seems to me, we're all flying blind. The markets are spiraling down, and our leading experts don't have much of a clue as to what to do.

Given that, one has to welcome the expected appointment to senior positions in the Obama administration of economists like Lawrence Summers, Timothy Geithner, Jason Furman, Peter Orszag, and Goolsbee himself. They're sober and competent people who know we face a real crisis -- and who, importantly, may be more

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When Hank Paulson's bailout bill tanked yesterday traders sold off US in a panic of epic proportions.

But Martin Hutchinson says the failure of the bill is a blessing for the economy. Propping up a rotten system will only reward failure and block creative innovation.

The worst case scenario now is that we'll see the the Dow slump to 5,000 points. This makes a defensive portfolio a must. Martin recommends invest in counter-market plays such as the SPDR Gold Trust ETF (NYSE:GLD) or the Rydex Inverse Gov Long Bond Strategy C (MUTF:RYJCX).

I consider the greatest economist of the last century to be Joseph Schumpeter, whose theory of creative destruction has implicitly underpinned the dynamism of US capitalism, at least until now. Suddenly, politicians are intervening to decide which companies are too big to fail, and stifling a necessary reallocation of capital and clearing of economic deadwood. It is essential and healthy that dysfunctional and under capitalised investment banks go bust, or that a dinosaur like GM faces Chapter 11, painful though those events would prove for many ordinary investors and employees. The system as a whole benefits from the reallocation of capital and people from sunset to sunrise industries, and the swifter the process, the more productive the economy at large. The pain suffered by California as the post Cold War peace dividend slashed defence spending in the early 1990’s is a case in point, and set the scene for …