Lars P. Syll — Blog Bernanke’s hubris

Lucas and Bernanke disastrously wrong — Minsky and Keen presciently right.

Lars P. Syll's Blog
Bernanke’s hubris
Lars P. Syll | Professor of Social Studies and Associate Professor of Economics, Malmo University

Bill Mitchell — A case for public banking

Can a society afford to risk the potential consequences of highly concentrated private banking?

Bill Mitchell – billy blog

A case for public banking

Bill Mitchell

Andrew Lainton — The Cost (that is Price) of Speculation – Going Beyond The Minsky ‘Ponzi’ Model

How do you make speculation endogenous to economic theory?
Further how do you make the full suite of potential profit making activities, speculation, hedging, arbitrage and investment endogenous?

By endogenous I mean a variable that is determined alongside other variables rather than outside the economic model. 

The reasoning in this post comes was prompted in part from speculation by Steve Keen on to what extent the speculative drive is a necessary component of capitalism even though it is destabilising, partly from some dissatisfaction with the Minsky ‘Ponzi’ model of asset speculation, which has been too easily dismissed by neoclassicals as somehow individuals not behaving ‘rationally’. The model here is a generalisation of our earlier model of default risk in banking and insurance across all sectors.

Decisions, Decisions, Decisions
The Cost (that is Price) of Speculation – Going Beyond The Minsky ‘Ponzi’ Model
Andrew Lainton

Interesting model, but it sounds to me like Minsky's hedge phase after which the Ponzi phase.

Andrew Lainton — The Cost (that is Price) of Speculation – Going Beyond The Minsky ‘Ponzi’ Model

How do you make speculation endogenous to economic theory?
Further how do you make the full suite of potential profit making activities, speculation, hedging, arbitrage and investment endogenous?

By endogenous I mean a variable that is determined alongside other variables rather than outside the economic model.

The reasoning in this post comes was prompted in part from speculation by Steve Keen on to what extent the speculative drive is a necessary component of capitalism even though it is destabilising, partly from some dissatisfaction with the Minsky ‘Ponzi’ model of asset speculation, which has been too easily dismissed by neoclassicals as somehow individuals not behaving ‘rationally’. The model here is a generalisation of our earlier model of default risk in banking and insurance across all sectors.

Decisions, Decisions, Decisions
The Cost (that is Price) of Speculation – Going Beyond The Minsky ‘Ponzi’ Model
Andrew Lainton

Robert Oak — Wall Street's Derivative Shell Game

Wall Street is now winding their way through the swiss cheese loophole maze financial reform is. Remember credit default swaps, those deadly, bad math, bad computation derivatives which were behind the financial crisis? These same types of risky derivatives are making a comeback masked as futures.

Wall street has found a new way to avoid regulation and continue their derivative CDS gambling casino and it is setting up the way for a new financial crisis. They are re-wrapping credit default swaps and other derivatives into futures, which are exempt from Dodd-Frank. more stringent regulations.

The Economic Populist
Wall Street's Derivative Shell Game
Robert Oak

Zombie finance? Looks like the Ponzi phase is not over yet.

Glenn Greenwald — Obama's Failure to Punish Banks Should Be Causing Serious Social Unrest

A new PBS Frontline report examines outrageous steps Obama's administration took to protect Wall St. Wall Street from prosecutions.

AlterNet
Obama's Failure to Punish Banks Should Be Causing Serious Social Unrest
Glenn Greenwald | The Guardian

Someone remind Glenn Greenwald that there already was an uprising across America called Occupy, and it was put down in many places by riot police wielding clubs and poison gas, coordinated by the Department of Homeland Security, pretty much like happens other fascist states.

Randy Wray — More on the Bankster License to Steal (Homes)

Fraud on Fraud is where you commit a second fraud to try to cover up the first. What this latest settlement tries to do is cover up the flaws of the first settlement. So what we essentially have here is settlement on settlement.

Better for them to throw money at us than face the harsh light of day. The banks recognized it was going to be too expensive and too unwieldy for them to go through with these reviews.

Economonitor | Great Leap Forward
More on the Bankster License to Steal (Homes)
L. Randall Wray

Steve Keen — Why Economics Is Bunk (BBC Podcast)

Newsnight Economics Editor Paul Mason interviews the controversial economist Steve Keen before an audience at the London School of Economics. Keen was one of a small number of economists who predicted there would be a major financial crisis before the 2008 crash. He argues that if we keep the "parasitic banking sector" alive the economy dies, and says that conventional economics provides an unwitting cover for "the greatest ponzi schemes in history".

BBC podcast (30 min)
Steve Keen — Why Economics Is Bunk
Paul Mason interviews Steve Keen
(h/t y in comments)

Zero Hedge — May Day Parody

Read it at Zero Hedge

HaPPY MaY DaY WaLL STReeT KoMRaDS
by williambanzai7

Michael Hudson — The Giant 21st Century Asset Grab

Read transcript of Paul Jay interview at Credit Writedowns
The Giant 21st Century Asset Grab
by Michael Hudson

Michael Husdon explains how the phase of Ponzi finance described by Minsky developed and is still in full swing, even after the crisis this resulted in.

Interestingly, it follows Ravi Batra's historical scenario. After WWII, military people (warriors) ran companies, based on organization and planning. After that, in the Sixties and Seventies, experts in production (intellectuals) ran companies based on knowledge, and beginning in the Eighties financial managers (acquisitors) took the reins and began to feed off prior gains parasitically, running companies down in the process. Instead of growing production, financial managers sought to increase economic rent.

Angry Bear — It's the Private Debt, Stupid

Read it at Angry Bear
It's the Private Debt, Stupid
Posted by Steve Roth
(h/t Kevin Fathi via email)

Go figure.

When really smart people like Ben Bernanke constantly ignore an elegant, simple, even obvious explanation that's been lying on the ground, ready to pick up, for at least 75 years, you gotta figure they've got some incentive -- whether they're conscious of it or not.

Must read.

Virtual Teach-In with William K. Black

Virtual Teach-In with William K. Black (audio)

with OccupiedMedia

Bill has this at his fingertips. Great summary.

Warning — Trend changing

My gut feeling from ingesting a lot of information, the particulars of which I am not going to cite in this short opinion piece, is that the trend is swiftly changing from a disinflationary environment to a deflationary one. Significantly for markets, this is also becoming the perception.

Convergence of perception and reality may presage big changes in behavior. This could spark the second leg down in the GFC that began with the collapse of Bear Stearns and hit crisis mode with the failure of Lehman Bros. In the interim three years, the prevailing philosophy of TPTB has been "extend and pretend." Converging factors in the US, UK, EZ, Japan, and China are now conspiring to make extend and pretend no longer credible as the financial malaise further undermines the global economy and the hope of any sort of timely recovery is evaporating as a rescue plan.

However, the global ruling elite is still firmly fixated on perpetuating the status quo, making it impossible to address the causes of the crisis, which lead by debt overhang due to Ponzi finance. The ruling elite is still adamant about making themselves whole by squeezing the rest. This is not working as global effective demand dries up, along with confidence. Deflation threatens to set in, and it becomes established as money is hoarded, e.g., as a safety measure and in expectation of falling prices.

This appears to be the beginning of the next stage in unwinding of the Ponzi stage of the long financial cycle. If this is the case, expect debt deflation, recrimination, denial, rushes for the exit, and naked pursuit of self-interest to dominate at the top, with confusion, anxiety, and pain increasing at the middle and bottom, as well as political instability and social unrest rising due to this.

I wish I could be more positive about this, but it is not possible to be more sanguine given the prevailing narrative. As the situation worsens and panic sets in, the story is likely to devolve even more as everyone tries to improve their own position at the expense of others instead of increasing adaptive rate by exploring options cooperatively and attempting to coordinate a solution that benefits all. Of course, I could be surprised and would like to be.

One of the big factors in the difficulty finding solutions in this environment is the convergence of many factors involved in the causality owing to globalization. This crisis is therefore unique. We have not been here before, and there is no historical precedent for dealing with a crisis of this scope and this level of systemic risk.

The plan so far has been just to muddle along with ad hoc patches until the problem fixes itself. That plan is failing. Moreover, the situation is being exacerbated by the predominance of austerity in the current universe of discourse, not only by TPTB, but also on the part of a large swath of the population that equates household and government finance.

MMT shows that none of this is necessary, since there need be no lack of money in a global system based on non-convertible floating rate currencies to offset saving. However, due to both ignorance and narrow self-interest, this solution is neither being considered by TPTB nor advanced in the mainstream media, let alone implemented politically.

Bank bailout continues under guise of European sovereign debt crisis

The multi-trillion dollar rescue of the banks that started in 2008 has not ended. It continues today under the guise of sovereign debt bailouts. And the cutbacks – to pensions, education, welfare, and public sector jobs – that wreak havoc on the lives of millions are all about funnelling public wealth to banks, pure and simple.

Read it all at Information Clearing House, Follow the Money: Behind the European Debt Crisis Lie More Bank Bailouts By David McNally

h/t Russell Huntley

Warren Mosler — Social Security no Ponzi

From Warren Mosler (link):

Ponzi would be if the govt. was dependent on borrowing to make payment.

The US Congress spends by instructing the Fed to credit someone’s member bank account at the Fed. This process is operationally independent from taxing and/or borrowing. It is not dependent on revenues of any sort.

All Social Security payments are a matter of the Fed entering data on its computer.

That is, all Federal spending can be said to be ‘printing money’.

And Federal taxing can be said to be ‘unprinting money’.

Also, Federal borrowing is nothing more than the shifting of dollars from reserve accounts at the Fed to securities accounts at the Fed.

And paying down the Federal debt is nothing more than the shifting of dollars from securities accounts at the Fed to reserve accounts at the Fed.

Neither is involved in the actual making of payments by the Fed.

Bottom line, the notion of Ponzi isn’t applicable when it comes to the issuer of the currency. Greece, the US states, corporations, and individuals are users of the currency and can be in Ponzi. The Fed, Bank of Japan, Bank of England, and European Central Bank are issuers of their own currency, so for them Ponzi does not apply.

Please forward this to the Republican candidates, the President, and all members of Congress, thanks.

Dr. Housing Bubble — "The worst may still be ahead for housing"

Over 2 million loans are currently in the foreclosure process. To envision 5 million more foreclosures in the next two years isn’t hard to imagine since nearly half of those homes are already in the process and only waiting to be finalized. It should be obvious to most of you that the banking bailouts were merely programs to protect financial institutions from facing reality.

That was it. It was one giant bread and circus spectacle to fool the public into believing that somehow these bailouts were necessary in keeping home values inflated (instead they inflated the pocketbooks of bankers). Now the government is talking about renting out REOs as some kind of solution. We have gone back to square one except we have already spent most of the money on propping up the financial institutions that caused this mess.

People are losing faith in the system especially with the insanity now going on with the debt ceiling. Apparently we have no problem dolling out trillions of dollars to banks so they don’t have to practice normal accounting procedures but when it comes to paying our bills we now have to tighten our fiscal belts? What an odd universe we live in at the moment.

Read the whole post at The worst may still be ahead for housing – 3 million homes foreclosed on in the last three years with another 5 to 7 million foreclosures in the pipeline. One third of homeowners believe they are underwater.

Dr. Housing Bubble has been saying for some time that housing prices are ultimately a multiple of income, and workers' incomes have been stagnant and unable to support inflated housing values. The only way that housing prices were able to advance was lax lending and laxer ethics. This extravagance has now come home to roost. The US is experiencing a classic debt-deflation that still has a considerable distance to run before the market clears.

Now the problem that country faces is dysfunctional politics, ideological rigidity, and economic fantasy. If stimulus is not continued will the US is still in a balance-sheet recession, let alone the deficit cut, the consequences will be swift in coming and fierce in impact as the housing market unwinds on the second leg down.

The government has done all it has in its power to avoid a debt-deflation, yet the US is still tapped on one. Should the government fiscal position retrench, then expect the unexpected. Apparently, practically no one sees this coming.

"There's No Recovery Because the Government Made it Official Policy Not to Prosecute Fraud"

Washington's Blog: There's No Recovery Because the Government Made it Official Policy Not to Prosecute Fraud

Fraud caused the Great Depression and it has caused the current financial crisis. But fraud is not not being prosecuted, and so it will occur again and again, and prevent a sustainable economic recovery.

Numerous economists have been saying this for years.

Not enough attention is being paid to this. Of course, the situation is highly complex and there were man causal and contributory factors. But the proximate cause of the Great Depression and the Global Financial Crisis (GFC) was Ponzi finance, typical at the culmination of a financial cycle according to Hyman Minsky's financial instability hypotheses. So far, much too little attention has been paid to this and and as a result the crisis is lingering and far from resolved.

MMT is well aware of this. MMT economist and developer L. Randall Wary was a PhD student of Hyman Minsky, for example. William K. Black was one of the earliest and loudest voices warning about massive control fraud."

Owing to capture, those responsible for oversight were suborned, Black charges. Owing to the same influence, politicians conveniently lost the plot and erected strawmen to attack. The result is a problem that continues to fester.

UPDATE: Randy Wray explains the gory details:

Lessons We Should Have Learned from the Global Financial Crisis

But that is easy to overlook in Washington/Wall Street since the biggest financial institutions escaped with barely a scratch, and have returned to the same practices and rewards that caused the GFC. By hook and by crook, Wall Street also escaped re-regulation as the flaccid Dodd-Frank Act avoided any fundamental reform. In any case, the Republicans have made clear that they will not provide new funding to regulatory agencies, so even the weak rules in the Act will never get enforced. And, so far (fingers crossed!) none of the big Wall Street crooks has been prosecuted for high crimes. Yes there have been some fines and civil cases, and a few lesser criminals like Bernie Madoff were sacrificed, but all the big banksters are not only free—they are still running their criminal organizations (called “chartered banks” in polite conversation), advising the White House, and gearing up to fund the next presidential campaign.

All of that is to say that financial reform is deader than Elvis. Nothing can be done until the next Wall Street-induced crash. But I am an eternal optimist—the crash will come soon—and so it is time to enumerate the lessons we should have learned from the GFC so as to prepare the reforms that should have been adopted.

Trader's Crucible is on a roll

Trader's Crucible adds a follow-up to recent posts, Chapter 3: In which Mr. Rowe proves his worth. Read the comments, too.

"Too much finance? "

Jean-Louis Arcand, Enrico Berkes, Ugo Panizza summarize the conclusion of their research into the size of the financial system in relation to the economy in Too much finance? at voxeu.org.

"Over the last three decades the US financial sector has grown six times faster than nominal GDP. This column argues that there comes a point when the financial sector has a negative effect on growth – that is, when credit to the private sector exceeds 110% of GDP. It shows that, of the advanced countries currently suffering in the fallout of the global crisis were all above this threshold."

Short and to the point. Useful read.

View "Inside Job" Online Free

The Internet Archive makes Charles Ferguson's award-winning documentary available for viewing here.

'Inside Job' provides a comprehensive analysis of the global financial crisis of 2008, which at a cost over $20 trillion, caused millions of people to lose their jobs and homes in the worst recession since the Great Depression, and nearly resulted in a global financial collapse. Through exhaustive research and extensive interviews with key financial insiders, politicians, journalists, and academics, the film traces the rise of a rogue industry which has corrupted politics, regulation, and academia. It was made on location in the United States, Iceland, England, France, Singapore, and China.

It is also available at Open Culture here.

This video documenting the rise and fall of Ponzi finance is of particular interest, because Ponzi finance and the conditions that lead to it are central to Hyman Minsky's financial instability hypothesis, which lies at the core of MMT's analysis of credit.

Here is Charlie Rose's interview with Charles Ferguson. (h/t Zero Hedge)