Tag Archives: Banking reform

It’s Time to Rewrite the Rules of Our Economy

Posted on October 13, 2017 by | Leave a comment

By Tim O’Reilly – Business leaders making decisions to outsource jobs to low-wage countries or to replace workers with machines, or politicians who insist that it is “the market” that makes them unable to require companies to pay a living wage, rely on the defense that they are only following the laws of economics. But the things economists study are not natural phenomena like the laws of motion uncovered by Kepler and Newton.

The political convulsions we’ve seen in the United Kingdom and in the United States are a testament to the difficulties we face. We are heading into a very risky time. Rising global inequality is triggering a political backlash that could lead to profound destabilization of both society and the economy. The problem is that in our free market economy, we found a way to make society as a whole far richer, but the benefits are unevenly distributed. Some people are far better off, while others are worse off.

Why do we have lower taxes on capital when it is so abundant that much of it is sitting on the sidelines rather than being put to work in our economy?

Why do we tax labor income more highly when one of the problems in our economy is lack of aggregate consumer demand because ordinary people don’t have money in their pockets? more> https://goo.gl/2DioyZ

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Posted in Banking, Book review, Broadband, CONGRESS WATCH, Economic development, Economy, History, Leadership, Media, Net, Technology

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When Wall Street Owns Main Street — Literally

Posted on October 11, 2017 by | Leave a comment

BOOK REVIEW

Makers & Takers: How Wall Street Destroyed Main Street, Author: Rana Foroohar.

By Rana Foroohar – Made up primarily of San Bernardino and Riverside counties, the Inland Empire was at the heart of the subprime mortgage crisis and has yet to fully recover.

In the early 2000s, predatory lenders flocked to the area, offering dicey deals to the largely minority and lower-middle-class white populations who, unable to afford housing on the coast, still craved the American Dream of homeownership. It ended, as it did in so many neighborhoods and cities across America, in tears and massive foreclosures, turning entire cities into ghost towns of derelict properties.

Private equity funds like Blackstone are giant financial institutions that operate largely outside the scrutiny of governmental regulation, since they are officially designated “nonbanks” or “shadow banks”—never mind that many of them are bigger than the better-known institutions that are subject to regulation.

Most people rightly associate private equity with offshore bank accounts (remember Mitt Romney and Bain Capital?), big corporate buyouts in which formerly healthy firms are loaded up with debt and stripped of their assets, mass layoffs, and an utter lack of transparency in their financial dealings.

But these days, the big news about private equity is that it is at the heart of the country’s housing rebound.

Private equity investors have become the single largest group of buyers in the residential housing market, purchasing $20 billion worth of steeply discounted properties between 2012 and 2014 alone and reaping huge rewards as housing prices have slowly risen from their troughs. more> https://goo.gl/P6fcNA

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Posted in Banking, Book review, Business, CONGRESS WATCH, Economy, History, Leadership, Media, Regulations

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The flaws a Nobel Prize-winning economist wants you to know about yourself

Posted on October 11, 2017 by | Leave a comment

BOOK REVIEW

Nudge: Improving Decisions about Health, Wealth and Happiness, Authors: Richard Thaler and Cass Sunstein.

By Eshe Nelson – Sorry to say it, but you’re not perfect. We like to believe that we are smart, rational creatures, always acting in our best interests. In fact, dominant economic theory these days often makes that assumption.

What was left of this illusion was further dismantled by the The Royal Swedish Academy of Sciences, who awarded the Nobel prize in economics to Richard Thaler, an American economist at the University of Chicago, for his pioneering work in behavioral economics, which examines humanity’s flaws—namely, why we don’t make rational economic decisions.

People can make bad economic choices based on something Thaler dubbed the “endowment effect,” which is the theory that people value things more highly when they own them. In other words, you’d ask for more money for selling something that you own than what you would be willing to pay to buy the same thing.

People experience the negative feeling of loss more strongly than they feel the positive sense of a gain of the same size. This is also impact by anchoring: If you are selling an item, your reference point is most likely to be the price you paid for something. Even if the value of that item is now demonstrably worth less, you are anchored to the purchase price, in part because you want to avoid that sense of loss.

This can lead to pain in financial markets, in particular. more> https://goo.gl/eR1B2B

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Posted in Book review, Business, CONGRESS WATCH, Economy, Education, History, Leadership, Media, Regulations

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The next financial crisis is probably around the corner—we just don’t know from where

Posted on October 6, 2017 by | Leave a comment

By John Detrixhe – The German bank’s study of developed markets uses this criteria to define a financial crisis: on a year-over-year basis, a 15% drop in stock markets, 10% decline in foreign-exchange, 10% fall in bonds, 10% increase in inflation, or a sovereign default.

Deutsche Bank argues that crises have been increasingly frequent since the breakdown of the Bretton Woods system, which, after World War II, fixed exchange-rates and essentially linked them to the price of gold. That coordination ended in the 1970s when the US broke the dollar’s peg to the yellow metal. The link to a finite commodity helped limit the amount of debt that could be created.

As strategists at the Frankfurt-based lender see it, the resulting fiat money system has encouraged rising budget deficits, higher debts, global imbalances, and more unstable markets. At the same time, banking regulations have been loosened. In the US, the industry may soon have fewer restrictions and less oversight, a mere 10 years since the last worldwide crisis. more> https://goo.gl/vDnQ2w

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Posted in Business, CONGRESS WATCH, Economic development, Economy, Education, History, Media, Net, Regulations

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Updates from Chicago Booth

Posted on October 4, 2017 by | Leave a comment

Local communities are driving global politics

By Raghuram G. Rajan – We live in a strange time.

Countries are more prosperous than ever before, new technologies that promise to solve our most intractable problems are on the horizon, and yet there is widespread unhappiness in some of the richest countries in the world. White males of working age in the United States are killing themselves through alcohol, drugs, and suicide at a rate that is as if 10 Vietnam Wars were raging simultaneously.

The immediate reason appears to be economic despair, as moderately educated workers lose jobs because of trade and automation. But workers lose (and gain) jobs regularly.

Why are even well-educated workers, holding decent middle-class jobs, so disheartened now? What should we do?

What we are seeing is a consequence of the information-technology revolution that started in the early 1970s, magnified by trade.

Every past technological revolution has been disruptive, prompted a societal reaction, and eventually resulted in societal change that helped us get the best out of the revolution. We have felt the disruption of the IT revolution, which has sometimes been punctuated by dramatic episodes such as the 2007–10 global financial crisis; we are now seeing the reaction in populist movements of the extreme left and right.

What has not happened yet is the necessary societal change, which is why so many despair of the future.

We are at a critical moment in human history, when wrong choices could derail human economic progress. more> https://goo.gl/aLSuFh

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Posted in Banking, Broadband, Business, Economic development, Economy, Education, History, Leadership, Media, Net, Science, Technology

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Insanely Concentrated Wealth Is Strangling Our Prosperity

Posted on September 29, 2017 by | Leave a comment

Today’s mountains of wealth throttle the very engine of wealth creation itself.

By Steve Roth – In 1976 the richest people had $35 million each (in 2014 dollars). In 2014 they had $420 million each — a twelvefold increase. You can be sure it’s gotten even more extreme since then.

These people could spend $20 million every year and they’d still just keep getting richer, forever, even if they did absolutely nothing except choose some index funds, watch their balances grow, and shop for a new yacht for their eight-year-old.

If you’re thinking that they “deserve” all that wealth, and all that income just for owning stuff, because they’re “makers,” think again: between 50% and 70% of U.S. household wealth is “earned” the old-fashioned way (cue John Houseman voice): it’s inherited.

American households’ total wealth is about $95 trillion. That’s more than three-quarters of a million dollars for every American household. But roughly 50% of households have zero or negative wealth. more> https://goo.gl/7xjgHf

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Five Stages of Economic Grief

Posted on September 27, 2017 by | Leave a comment

BOOK REVIEW

Economyths: 11 Ways That Economics Gets it Wrong, Author: David Orrell.
A Failure of Capitalism: The Crisis of ’08 and the Descent, Author: Richard Posner.
Economics Rules, Author: Dani Rodrik.
The Trouble With Physics, Author: Lee Smolin.

By David Orrell – When Economyths first came out, most economists were in a state of denial – especially those at the top of the profession. Future laureate Tom Sargent said in a 2010 interview “It is just wrong to say that this financial crisis caught modern macroeconomists by surprise.” (No mention of whether the non-modern macroeconomists saw it coming too.)

Laureate Robert Lucas preferred to see the unpredictability as a natural result of future laureate Eugene Fama’s efficient market hypothesis (though as Posner notes, that didn’t stop him from predicting, shortly after Lehman’s collapse, that the crisis would soon go away).Fama agreed that the efficient market hypothesis ‘did quite well in this episode’. The Nobel committee apparently agreed too.

As reality sank in, economists soon began lashing out in anger at anyone who dared criticize their field, including yours truly (I’m going to talk about this because it seems to be quite a general problem). At Canada’s top-ranked economics blog Worthwhile Canadian Initiative, for example, a group of prominent academics, including regular contributors to national publications (Globe and Mail, National Post, Maclean’s, Literary Review of Canada, etc.), shared their professional thoughts about the book online.

Descriptors used included idiotic, ignorant, intellectually lazy, juvenile, random, rubbish, semi-articulated, and ‘sort of like Malcolm Gladwell without the insight’ – ouch. Someone even compared me to a climate change denier (not uncommon, as it turns out). more> https://goo.gl/nAhwBT

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Posted in Banking, Book review, Economy, Education, History, Leadership, Media

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The Next Crisis Will Start in Silicon Valley

Posted on September 20, 2017 by | Leave a comment

By William Magnuson – It has been 10 years since the last financial crisis, and some have already started to predict that the next one is near. But when it comes, it will likely have its roots in Silicon Valley, not Wall Street.

Our banks are better capitalized than ever. Our regulators conduct regular stress tests of large institutions. And the Dodd-Frank Act imposes strict requirements on systemically important financial institutions.

But while these reforms have managed to reduce the risks that caused the last crisis, they have ignored, and in some cases exacerbated, the emerging risks that may cause the next one.

These financial technology (or “fintech”) markets are populated by small startup companies, the exact opposite of the large, concentrated Wall Street banks that have for so long dominated finance. And they have brought great benefits for investors and consumers. By automating decision-making and reducing the costs of transactions, fintech has greased the wheels of finance, making it faster and more efficient.

But revolutions often end in destruction. And the fintech revolution has created an environment ripe for instability and disruption. It does so in three ways. …

Wall Street is no longer the future of finance. Silicon Valley is. more> https://goo.gl/LK6CsY

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Posted in Banking, Broadband, Business, CONGRESS WATCH, Economic development, Economy, History, Leadership, Media, Net, Regulations

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David Brooks Is Mistaken: The Economy Is Broken

Posted on September 20, 2017 by | Leave a comment

By Steve Denning – Brooks concludes blithely that “the market is working more or less as it’s supposed to.” It is therefore wrong to conclude that the U.S. economy has “structural flaws.” That is “a story that is fundamentally untrue.”

The difficulty with the argument, as Brooks well knows, is that one or two good years don’t make an era. Two years of income growth don’t undo the trauma flowing from 50 years of wage stagnation, much less lead to the conclusion that there are “no structural flaws” in the economy.

The brute fact remains that median salaries have stagnated for some 50 years. That’s the real problem of the U.S. economy that economists ought to be talking about.

When moderates deny the obvious, the disaffected inevitably turn elsewhere.

If moderates want to be listened to, they will need to take a harder look at what is going on, come up with coherent explanations for what has gone wrong, and offer plausible remedial action. more> https://goo.gl/zuoJbQ

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Posted in Banking, Broadband, Business, CONGRESS WATCH, Economic development, Economy, Education, Energy & emissions, Healthcare, History, Leadership, Media, Net, Regulations, Technology, telecom, Transportation

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Return of the city-state

Posted on September 18, 2017 by | Leave a comment

BOOK REVIEW

Radicals Chasing Utopia, Author: Jamie Bartlett.
The End of the Nation State, Author: Jean-Marie Guéhenno.
The End of the Nation State, Author: Kenichi Ohmae.
The New Localism: How Cities Can Thrive in the Age of Populism, Author: Bruce Katz.

Nation-states came late to history, and there’s plenty of evidence to suggest they won’t make it to the end of the century
By Jamie Bartlett – To the people living under the mighty empire, these events must have been unthinkable. Just as they must have been for those living through the collapse of the Pharaoh’s rule or Christendom or the Ancien Régime.

We are just as deluded that our model of living in ‘countries’ is inevitable and eternal.

Which is all rather odd, since they’re not really that old. Until the mid-19th century, most of the world was a sprawl of empires, unclaimed land, city-states and principalities, which travelers crossed without checks or passports. As industrialization made societies more complex, large centralized bureaucracies grew up to manage them.

Those governments best able to unify their regions, store records, and coordinate action (especially war) grew more powerful vis-à-vis their neighbors. Revolutions – especially in the United States (1776) and France (1789) – helped to create the idea of a commonly defined ‘national interest’, while improved communications unified language, culture and identity. Imperialistic expansion spread the nation-state model worldwide, and by the middle of the 20th century it was the only game in town.

There are now 193 nation-states ruling the world. more> https://goo.gl/2N1bGb

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Posted in Banking, Book review, Broadband, Business, EARTH WATCH, Economic development, History, Leadership, Media, Net, Regulations

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