Tag Archives: Banking reform

Why The Only Answer Is To Break Up The Biggest Wall Street Banks

By Robert Reich – Glass-Steagall’s key principle was to keep risky assets away from insured deposits. It worked well for more than half century. Then Wall Street saw opportunities to make lots of money by betting on stocks, bonds, and derivatives (bets on bets) – and in 1999 persuaded Bill Clinton and a Republican congress to repeal it.

Nine years later, Wall Street had to be bailed out, and millions of Americans lost their savings, their jobs, and their homes.

Why didn’t America simply reinstate Glass-Steagall after the last financial crisis? Because too much money was at stake. Wall Street was intent on keeping the door open to making bets with commercial deposits. So instead of Glass-Steagall, we got the Volcker Rule – almost 300 pages of regulatory mumbo-jumbo, riddled with exemptions and loopholes.

Now those loopholes and exemptions are about to get even bigger, until they swallow up the Volcker Rule altogether. If the latest proposal goes through, we’ll be nearly back to where we were before the crash of 2008. more>

Crisis Of Globalization: Restoring Social Investment Is Key

By Robert Kuttner – Why is democracy under siege throughout the West? How much of the story is cultural or racial, and how much is economic? And can the slide into authoritarianism be reversed? I think it can.

In the remarkable three decades after World War II, the economy delivered for ordinary people and there was broad support for democracy. That era was unique in two key respects.

First, the economy not only grew at record rates for peacetime, but it also became more equal. Second—and not coincidentally—this was a period when raw capitalism was tightly regulated, on both sides of the Atlantic, economically and politically.

Banking was very limited in what products it could offer, and at what prices. It was almost like a public utility. There were no exotic securities like credit derivatives to deliver exorbitant profits and put the whole economy at risk. Globally, there were fixed exchange rates and capital controls, so bankers could not make bets against currencies and entire economies.

Organized labor was empowered. Unions were accepted as legitimate social partners and had substantial influence. This was true in both Europe and America.

In the years since then, political and financial elites have redefined trade agreements to mean not just reciprocal cuts in tariffs but broader changes in global rules to make it easier for banks and corporations to evade national regulation.

Laissez-faire, discredited and marginalized after 1929, got another turn at bat(ting). Hyper-globalization was a key instrument. And that reversion had economic and ultimately political consequences. more>

Fiscal Policy Remains In The Stone Age

By Simon Wren-Lewis – Or maybe the middle ages, but certainly not anything more recent than the 1920s. Keynes advocated using fiscal expansion in what he called a liquidity trap in the 1930s. Nowadays we use a different terminology, and talk about the need for fiscal expansion when nominal interest rates are stuck at the Zero Lower Bound or Effective Lower Bound.

When monetary policy loses its reliable and effective instrument to manage the economy, you need to bring in the next best reliable and effective instrument: fiscal policy.

The Eurozone as a whole is currently at the effective lower bound. Rates are just below zero and the ECB is creating money for large scale purchases of assets: a monetary policy instrument whose impact is much more uncertain than interest rate changes or fiscal policy changes (but certainly better than nothing). The reason monetary policy is at maximum stimulus setting is that Eurozone core inflation seems stuck at 1% or below. Time, clearly, for fiscal policy to start lending a hand with some fiscal stimulus.

You would think that causing a second recession after the one following the GFC would have been a wake up call for European finance ministers to learn some macroeconomics. Yet what little learning there has been is not to make huge mistakes but only large ones: we should balance the budget when there is no crisis. more>

The Failures of Globalism

BOOK REVIEW

Us Vs. Them: The Failure of Globalism, Author: Ian Bremmer.

By Gabrielle Levy – If the six and a half decades that followed the end of World War II were a triumph of globalism, an era of prosperity and peace as the world grew increasingly interconnected, the second decade of the 21st century has seen the rise of a new populism that has pushed back.

Convulsions of anger – at corrupt government elites, at the floods of refugees fleeing sectarian conflict, at the loss of jobs as workers are increasingly replaced by automation and artificial intelligence – culminated in the pair of 2016 events, Brexit and the election of Donald Trump as U.S. president, that turned conventional wisdom on its head.

The biggest piece, I think, has already happened. When globalism started, after World War II was over, the United States recognized that we never want to have a flight like that again, so we’ve got to do something about it. We’re going to rebuild our former enemies – the Germans, the Japanese – and we’re going to build the United Nations.

More broadly, as it continues, it’s going to be a lot of opposition to the United States sending troops fighting in other people’s battles, like we’ve seen in Afghanistan and Iraq and Syria. It’s going to be a lot less support for immigration into the U.S., unless you’ve got a skill set or a lot of money, and we’re already seeing that start to happen.

And it’s possibly going to lead to more trade disputes, certainly in terms of big technology, where, instead of having one global free market, we end up having much more fragmentation of a marketplace with more strategic sectors.

And some of that is because the United States is not willing to promote free multilateral trade organizations, but some of it is because the Chinese are building an alternative system that has no global free trade at all.

It’s all just going to be linked to Beijing. So when you put that all together, you start to see what the future of this world will look like.

Globalization can turn a virtuous cycle into a vicious one – where globalization improves people’s lives, only to raise their expectations. That, in turn, raises frustrations when those expectations are met.

In China, the growing middle class and the rising wages risk threatening the very economic engine – cheap labor – that made that progress possible. Can developing countries avoid this trap? more>

The Troubling Transformation Of The EU

By Hans Kundnani – There are two quite different ways of thinking about the Commission’s proposals. For Macron, they were part of a vision for a “Europe qui protege” in which there would be greater “solidarity” between citizens and member states.

In the context of this vision, the new European Monetary Fund would be a kind of embryonic treasury for the eurozone. But many in Germany, including Wolfgang Schäuble, seem to support the same idea for entirely different reasons. They see it as a way to increase control over EU member states’ budgets and more strictly enforce the eurozone’s fiscal rules and thus increase European “competitiveness”. If that vision were to prevail, “more Europe” would mean “more Germany” – as many of the steps that have been taken in the last seven years since the euro crisis began have.

These different visions illustrate the way that deepening European integration is not automatically or inherently a good thing. In fact, steps such as turning the ESM (European Stability Mechanism) into a European Monetary Fund may form part of a troubling transformation of the EU that goes back to the beginning of the euro crisis.

It is as if the EU is in the process of being remade in the image of the IMF. It increasingly seems to be a vehicle for imposing market discipline on member states – something quite different from the project that the founding fathers had in mind and also quite different from how most “pro-Europeans” continue to imagine the EU.

Indeed, it is striking that, in discussions about debt relief for crisis countries, the European Commission has often been even more unyielding than the IMF. As Luigi Zingales put it in July 2015: “If Europe is nothing but a bad version of the IMF, what is left of the European integration project?” more>

Why Amartya Sen remains the century’s great critic of capitalism

BOOK REVIEW

The Moral Economists: R H Tawney, Karl Polanyi, E P Thompson and the Critique of Capitalism, Author: Tim Rogan.

By Tim Rogan – Critiques of capitalism come in two varieties. First, there is the moral or spiritual critique. This critique rejects Homo economicus as the organizing heuristic of human affairs. Human beings, it says, need more than material things to prosper. Calculating power is only a small part of what makes us who we are. Moral and spiritual relationships are first-order concerns. Material fixes such as a universal basic income will make no difference to societies in which the basic relationships are felt to be unjust.

Then there is the material critique of capitalism. The economists who lead discussions of inequality now are its leading exponents. Homo economicus is the right starting point for social thought. We are poor calculators and single-minded, failing to see our advantage in the rational distribution of prosperity across societies. Hence inequality, the wages of ungoverned growth. But we are calculators all the same, and what we need above all is material plenty, thus the focus on the redress of material inequality. From good material outcomes, the rest follows.

But then there is Amartya Sen. Every major work on material inequality in the 21st century owes a debt to Sen.

But his own writings treat material inequality as though the moral frameworks and social relationships that mediate economic exchanges matter. Famine is the nadir of material deprivation.

But it seldom occurs – Sen argues – for lack of food.

To understand why a people goes hungry, look not for catastrophic crop failure; look rather for malfunctions of the moral economy that moderates competing demands upon a scarce commodity. Material inequality of the most egregious kind is the problem here. more>

How capitalism without growth could build a more stable economy

By Adam Barrett – On a finite planet, endless economic growth is impossible. There is also plenty of evidence that in the developed world, a continued increase of GDP does not increase happiness.

Back in 1930 the economist John Maynard Keynes predicted that growth would end within a century – but he was unclear whether a post-growth capitalism was really possible.

Today, mainstream economic thinking still considers growth to be a vital policy objective – essential to the health of a capitalist economy. There remains a concern that ultimately, a capitalist economy will collapse without growth.

I recently published new research that suggests a different view – that a post-growth economy could actually be more stable and even bring higher wages. It begins with an acceptance that capitalism is unstable and prone to crisis even during a period of strong and stable growth – as the great financial crash of 2007-08 demonstrated.

I found that an end to growth reduces profits for business owners.

Therefore, if it remains relatively easy for money to flow across borders, then investors might abandon a post-growth country for a fast-growing developing country. Also, businesses are beholden to shareholders keen on growth as a means to rapid profit accumulation.

Some mainstream commentators and economists are now predicting a transition to a post-growth era, whatever our environmental policy – which means the study of post-growth economics is a field which itself will grow. more>

‘No Cash’ Signs Everywhere Has Sweden Worried It’s Gone Too Far

By Amanda Billner – “No cash accepted” signs are becoming an increasingly common sight in shops and eateries across Sweden as payments go digital and mobile.

But the pace at which cash is vanishing has authorities worried.

“If this development with cash disappearing happens too fast, it can be difficult to maintain the infrastructure” for handling cash, said Mats Dillen, the head of the parliamentary review.

Sweden is widely regarded as the most cashless society on the planet. Most of the country’s bank branches have stopped handling cash; many shops, museums and restaurants now only accept plastic or mobile payments. But there’s a downside, since many people, in particular the elderly, don’t have access to the digital society.

In response, the central bank is considering whether there’s a need for an official form of digital currency, an e-krona. A final proposal isn’t expected until late next year, but the idea is that the e-krona would work as a complement to cash, not replace it completely. more>

Monopoly Now Wants You to Cheat—Just Like Real Capitalists

BOOK REVIEW

Cornered: The New Monopoly Capitalism & The Economics of Destruction, Author: Barry Lynn.

By Nick Cassella – The year was 1904, and Lizzie Maggie wanted to create a board game that acted as “a harsh criticism of wealth disparity.” Upset by the the inequality around her, Maggie aspired to ridicule and condemn the dire outcomes of unbridled capitalism. So she constructed the Landlord’s Game, which intended to educate players on the rules and regulations of realty and taxation. Eventually, it ended up being the precursor to the game-which-nobody-ever-finishes, Monopoly.

A long time has passed since then and it’s safe to say that Maggie’s hope has not been realized. Monopoly’s creator would look at today’s economic landscape and be disheartened.

It appears as if Hasbro is trying to draw attention to Monopoly’s original purpose by releasing a new “cheaters edition” this autumn.

The cheaters edition follows the rules of classic Monopoly, except this version encourages players to break them…They encourage players to cheat in various ways, from collecting rent on another player’s property or stealing money from the bank.

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Today, inflation. Tomorrow, crisis?

By Robert J. Samuelson – Until recently, inflation seemed to be dead or, at least, in a prolonged state of remission. It was beaten down by cost-saving technologies and a caution against raising wages and prices instilled by the Great Recession. From 2010 to 2015, annual inflation as measured by the CPI averaged about 1.5 percent, often too small to be noticed.

It’s doubtful that many economists believe that inflation is now so high. Remember those erratic month-to-month swings. But the pervasive nature of the inflation suggests that supply is shrinking compared with demand.

Inflation’s rebound seems to vindicate former Federal Reserve chair Janet L. Yellen, who argued that price increases were in hibernation, not the mortuary. Now, her successor, Jerome H. Powell, faces the tricky task of containing inflation without killing the economy.

What’s scarier is the possibility that higher inflation and interest rates will trigger a global financial crisis — some mixture of stock market collapses, bond and loan defaults and banking failures. more>