Tag Archives: Banking reform

The dangers of ultra-long-term bonds

By Judd Gregg – The dollar is the key to world commerce. It is used by most nations as their reserve currency. It is essentially other countries’ insurance against their governments pursuing profligate fiscal policy.

This fact would possibly make the sale of 50- or 100-year U.S. bonds acceptable in the world market. But it should also give us significant pause.

If we want our currency to be the reserve currency of choice around the world, then we need that currency to be respected.

If we start issuing general obligation bonds that have 50- or 100-year terms, we will inevitably call into question the long-term integrity of our nation’s fiscal house. Financing current expenses for 5, 10 or even 30 years may be an accepted practice, but to go out 50 or 100 years is not. more> https://goo.gl/t5bjEg

The Ghost Bosses

By Brian Alexander – Lancaster’s decline wasn’t the result of some sort of natural and inevitable evolution of technology, like the demise of the buggy-whip industry, nor of the pressures of free trade and offshoring, as intense as those have been.

It is the culmination of a series of decisions over a period of roughly 35 years. As one former CEO of EveryWare Global told me, “It’s not about making the product. It’s about making money appear and the 99 percent doesn’t understand that.”

The Plant 1 employees certainly don’t. They only know that the old social contract has disintegrated and that nothing has come to take its place.

Back in 1984, A. Bartlett Giammatti, who was then the president of Yale University, and who would later become the commissioner of Major League Baseball, warned that the tide of deal-making and the financialization of the economy could lead to disillusionment and drift as “the impulse to private gain has nothing to connect itself to except itself.” more> https://goo.gl/pdCRz1

Adequate Housing: Global Financial Institutions Hold the World to Ransom

By Aisha Maniar – Global real estate is valued at around USD 217 trillion, representing 60% of all global assets.

At a recent press conference, the UN Special Rapporteur on the Right to Adequate Housing, Leilani Farha, stated that “Residential real estate is valued at $USD 163 trillion or more than twice the world’s total GDP.” She added, “Imagine if that capacity was harnessed for the realization of the right to housing instead of speculation and profit.’

In presenting a new hard-hitting report on 1 March, which “focuses on the “financialization of housing” and its impact on human rights”, Farha stated that “Housing has lost its currency as a human right” and “has been financialized: valued as a commodity rather than a human dwelling.”

The housing crisis, which “has not often been considered from the standpoint of human rights,” is global.

Many Western governments have adopted a “let them eat cake” response to the crisis. Rather than address the question of affordable and adequate housing, governments have acquiesced to market forces, with the governments of the UK and Ireland, for example, seeing a solution in building more private homes, to the benefit of developers, even though many properties lie empty in both states.

The Australian government continues to grant tax concessions to developers. more> https://goo.gl/5vYwcy

The Blockchain Will Do to the Financial System What the Internet Did to Media

By Joichi ItoNeha NarulaRobleh Ali – Even years into the deployment of the internet, many believed that it was still a fad.

Fast forward two decades: Will we soon be seeing a similar impact from cryptocurrencies and blockchains?

There are certainly many parallels. Like the internet, cryptocurrencies such as Bitcoin are driven by advances in core technologies along with a new, open architecture — the Bitcoin blockchain. Like the internet, this technology is designed to be decentralized, with “layers,” where each layer is defined by an interoperable open protocol on top of which companies, as well as individuals, can build products and services.

Like the internet, in the early stages of development there are many competing technologies, so it’s important to specify which blockchain you’re talking about.

The internet and its layers took decades to develop, with each technical layer unlocking an explosion of creative and entrepreneurial activity.

Early on, Ethernet standardized the way in which computers transmitted bits over wires, and companies such as 3Com were able to build empires on their network switching products.

The TCP/IP protocol was used to address and control how packets of data were routed between computers. Cisco built products like network routers, capitalizing on that protocol, and by March 2000 Cisco was the most valuable company in the world.

In 1989 Tim Berners-Lee developed HTTP, another open, permissionless protocol, and the web enabled businesses such as eBay, Google, and Amazon. more> https://goo.gl/LCuZG0

When Bankers Started Playing With Other People’s Money

By William D. Cohan – On April 10, 1970, nearly a year after first filing its IPO prospectus with the SEC, DLJ pulled it off, raising $12 million from the public and as a result fundamentally altering how Wall Street has functioned ever since. “Going public changed Wall Street permanently and forever,” Richard Jenrette (the J in DLJ) told the Times.

On April 10, 1970, nearly a year after first filing its IPO prospectus with the SEC, DLJ pulled it off, raising $12 million from the public and as a result fundamentally altering how Wall Street has functioned ever since. “Going public changed Wall Street permanently and forever,” Richard Jenrette (the J in DLJ) told the Times.

The truth was going public made perfect sense for DLJ and the many Wall Street firms—nearly every one—that followed its lead.

The problem is that the country is still dealing with the unintended consequences of the DLJ IPO to this day. And, of course, back in 1970, very few people, if any, were paying attention to what a small private partnership on Wall Street was trying to do to change the system. And honestly, the importance of the DLJ IPO has still not been fully appreciated. But it was a seminal event.

Ultimately, the unintended consequences of the DLJ IPO would be devastating. In October 1970, Weeden & Co. followed DLJ’s lead and went public. Then the floodgates opened. more> https://goo.gl/z6MzwK

In praise of cash

BOOK REVIEW

The Heretic’s Guide to Global Finance, Author: Brett Scott.
The Curse of Cash, Author: Kenneth Rogoff.

By Brett Scott – So here I am, the tired individual rationally seeking sugar. The market is before me, fizzy drinks stacked on a shelf, presided over by a vending machine acting on behalf of the cola seller. It’s an obedient mechanical apparatus that is supposed to abide by a simple market contract: If you give money to my owner, I will give you a Coke. So why won’t this goddamn machine enter into this contract with me?

This is market failure.

To understand this failure, we must first understand that we live with two modes of money. ‘Cash’ is the name given to our system of physical tokens that are manually passed on to complete transactions. This first mode of money is public. We might call it ‘state money’. Indeed, we experience cash like a public utility that is ‘just there’.

This second mode of money is essentially private, running off an infrastructure collectively controlled by profit-seeking commercial banks and a host of private payment intermediaries – like Visa and Mastercard – that work with them. The data inscriptions in your bank account are not state money.

Rather, your bank account records private promises issued to you by your bank, promising you access to state money should you wish. Having ‘£500’ in your Barclays account actually means ‘Barclays PLC promises you access to £500’. The ATM network is the main way by which you convert these private bank promises – ‘deposits’ – into the state cash that has been promised to you. The digital payments system, on the other hand, is a way to transfer – or reassign – those bank promises between ourselves.

The cashless society – which more accurately should be called the bank-payments society – is often presented as an inevitability, an outcome of ‘natural progress’. This claim is either naïve or disingenuous. Any future cashless bank-payments society will be the outcome of a deliberate war on cash waged by an alliance of three elite groups with deep interests in seeing it emerge. more> https://goo.gl/KRlMGW

Economists Get Too Much Credit — and Blame

By Victoria Bateman – Now, with the threat of deglobalization hanging over us, economists stand on the sidelines, feeling ignored.

This recent turn of events might leave us wondering: Do economists have the power and influence required to affect political and policy outcomes, or is it politics that determines which strains of economics are cherry-picked and ultimately championed?

Were John Maynard Keynes alive today, he would no doubt argue that the global financial crisis, Brexit and the election of Donald Trump are all a result of a failed free-market economic agenda, resulting in rising inequality and a slowdown in economic growth, leaving the general public reeling. Economists would be squarely in the dock.

As far as that great rival to Keynesian thinking, Milton Friedman, was concerned, it is the public’s experiences and not the writings of economists that drive economic and policy revolutions. more> https://goo.gl/4J5c2x

The European Unraveling?

By Ana Palacio – The problem for the EU is no longer the indifference that marked the worst elements of President Barack Obama‘s approach to Europe. It is outright US hostility. Trump’s praise of Brexit, which emphasized the British people’s “right to self-determination,” and his belittling reference to the EU as “the Consortium” in his appearance with British Prime Minister Theresa May, underscores his hostility.

Europe is now stuck between a US and a Russia that are determined to divide it. What are we Europeans to do?

One option is to pander to Trump. That is the approach May took on her visit to Washington, DC, when she stood by silently as Trump openly declared his support for the use of torture at their joint press conference.

But, for the EU, such appeasement would be counter-productive. It is our values, not our borders, that define us. It makes little sense to abandon them, especially to ingratiate ourselves with a leader who has shown himself to be capricious and utterly untrustworthy.

The third option – and the only viable one for the EU – is self-reliance and self-determination. Only by strengthening its own international positions – increasing its leverage, in today’s jargon – can the EU cope effectively with America’s wavering fidelity to its allies and the values they share. more> https://goo.gl/FRuIrO

The great cryptocurrency heist

By E J Spode – We need to talk about trust and its place in the fabric of our lives. Trust seems to be in short supply these days, although we have no choice but to rely on it.

We trust schools and babysitters to look after our children. We trust banks to hold our money and to transfer it safely for us. We trust insurance companies to pay us should we meet with some disaster. When we make a large purchase – such as a house – we trust our solicitors or an escrow company to hold the funds until the transaction is complete. We trust regulators and governments to make sure these institutions are doing what they are supposed to be doing.

A good way to wrap our minds around ‘blockchain’ concept is to think of its most famous application: Bitcoin. And the best way to think about Bitcoin is not in terms of coins at all but rather as a giant ledger.

Bitcoin is just one version of the blockchain. The fundamental technology has the potential to replace a much wider range of human institutions in which we use trust to reach a consensus about a state of affairs. It could provide a definitive record for property transfers, from diamonds to Porsches to original Picassos. It could be used to record contracts, to certify the authenticity of valuable goods, or to securely store your health records (and keep track of anyone who’s ever accessed them).

But there’s a catch: what about the faithful ‘execution’ of a contract? Doesn’t that require trust as well?

What good is an agr’ement, after all, if the text is there but people don’t respect it, and don’t follow through on their obligations? more> https://goo.gl/rW7huO

Backing into World War III

By Robert Kagan – Think of two significant trend lines in the world today. One is the increasing ambition and activism of the two great revisionist powers, Russia and China.

The other is the declining confidence, capacity, and will of the democratic world, and especially of the United States, to maintain the dominant position it has held in the international system since 1945. As those two lines move closer, as the declining will and capacity of the United States and its allies to maintain the present world order meet the increasing desire and capacity of the revisionist powers to change it, we will reach the moment at which the existing order collapses and the world descends into a phase of brutal anarchy, as it has three times in the past two centuries.

The cost of that descent, in lives and treasure, in lost freedoms and lost hope, will be staggering. History shows that world orders do collapse, however, and when they do it is often unexpected, rapid, and violent.

The late 18th century was the high point of the Enlightenment in Europe, before the continent fell suddenly into the abyss of the Napoleonic Wars. In the first decade of the 20th century, the world’s smartest minds predicted an end to great-power conflict as revolutions in communication and transportation knit economies and people closer together. The most devastating war in history came four years later. The apparent calm of the postwar 1920s became the crisis-ridden 1930s and then another world war.

Where exactly we are in this classic scenario today, how close the trend lines are to that intersection point is, as always, impossible to know. Are we three years away from a global crisis, or 15?

That we are somewhere on that path, however, is unmistakable.

And while it is too soon to know what effect Donald Trump’s presidency will have on these trends, early signs suggest that the new administration is more likely to hasten us toward crisis than slow or reverse these trends.

It will be more than a shame if Americans were to destroy what they created—and not because it was no longer possible to sustain but simply because they chose to stop trying. more> https://goo.gl/cGZ3En