Austan Goolsbee

Obama's senior economic adviser, could use some prediction markets:

On November 11, 2007, he published a column in the New York Times citing research by an MIT professor to conclude “that the bond market - which, historically, has often been an early indicator of the demise of a political system - was pessimistic about the Iraqi government’s chances for survival.” The evidence for this was the fact that Iraq’s dollar-denominated bonds were trading at a huge discount from their face value.

Goolsbee went on to praise “the prescience of financial markets.” Only in this case they haven’t turned out to be so prescient after all. The surge, as we know, has succeeded spectacularly. As a result the risk premium on Iraq’s bonds has fallen from nearly 7.0% in August 2007 to around 4.8% last month. Citigroup even released a research note in April which, according to Reuters, concluded that “Iraq is proving an oasis for investors battered by global financial turmoil” and that the “cost of insuring Iraq’s bonds against default has fallen so sharply that they now costs less to insure than Venezuelan debt.”

Not surprisingly there has not been a word about the improvement in outlook for Iraq’s bonds from Professor Goolsbee or the New York Times.