Fixing Out-Of-Control Banking Systems? — Brian Romanchuk

This is just a short post-script to some points in the James Meadway article I discussed yesterday. What is to be done about financial sectors that are out-of-control, and endangering economic stability?...

I would add one important thing that MMT contirubtes to this debate that Brian doesn't mention here. Warren Mosler has pounded on the need to regulate banks' asset side rather than their liability side as is current practice.

Brian does mention that MMT economists have criticized current banking practice and have offered recommendations for reform based on Minsky. Warren, who formerly owned a small bank, has been out front on this with his recommendations, including proposals at his place.

Bond Economics
Fixing Out-Of-Control Banking Systems?
Brian Romanchuk

Clint Ballinger — The Banking System We Need

Outline of a proposal.

I am traveling at the moment & this is a rough draft that needs editing – comments greatly appreciated.

Please post your constructive criticism over there and copy your comments here if you wish. 

Clint Ballinger
The Banking System We Need

Ellen Brown — A Revolutionary Pope Calls for Rethinking the Outdated Criteria That Rule the World

Pope Francis’ revolutionary encyclical addresses not just climate change but the banking crisis. Interestingly, the solution to that crisis may have been modeled in the Middle Ages by Franciscan monks following the Saint from whom the Pope took his name.

Pope Francis has been called “the revolutionary Pope.” Before he became Pope Francis, he was a Jesuit Cardinal in Argentina named Jorge Mario Bergoglio, the son of a rail worker. Moments after his election, he made history by taking on the name Francis, after Saint Francis of Assisi, the leader of a rival order known to have shunned wealth to live in poverty.

Pope Francis’ June 2015 encyclical is called “Praised Be,” a title based on an ancient song attributed to St. Francis. Most papal encyclicals are addressed only to Roman Catholics, but this one is addressed to the world. And while its main focus is considered to be climate change, its 184 pages cover much more than that. Among other sweeping reforms, it calls for a radical overhaul of the banking system.

Laudato Si' calls for a new approach to economics and public policy globally.

The financial crisis of 2007-08 provided an opportunity to develop a new economy, more attentive to ethical principles, and new ways of regulating speculative financial practices and virtual wealth. But the response to the crisis did not include rethinking the outdated criteria which continue to rule the world.

. . . A strategy for real change calls for rethinking processes in their entirety, for it is not enough to include a few superficial ecological considerations while failing to question the logic which underlies present-day culture.

Web of Debt
A Revolutionary Pope Calls for Rethinking the Outdated Criteria That Rule the World
Ellen Brown

MMT Information Service — Banking Reform

From MMT Information Service in a comment here and here. The comment contains the URL's if you would need it to post elsewhere:

L.Randall Wray: What Should Banks Do? A Minskyan Analysis

Warren Mosler: Proposals for the Banking System

____________: Small Banks Being Crushed by the Fed's Game of Musical Chairs

Scott Fullwiler: How the Crisis Has Changed the Economic Policy Paradigm


Scott Fullwiler and L.Randall Wray: It’s Time to Rein in the Fed


Bill Mitchell: Nationalising the Banks

James K. Galbraith: Statement of Professor James K. Galbraith to the Subcommittee on Domestic Monetary Policy and Technology, Committee on Financial Services, US House of Representatives

______________: A “People First” Strategy: Credit Cannot Flow When There Are No Creditworthy Borrowers or Profitable Projects

Eric Tymoigne: Financial Stability, Regulatory Buffers, and Economic Growth: Some Postrecession Regulatory Implications

Eric Tymoigne and L. Randall Wray: It Isn't Working: Time for More Radical Policies

William Black: Statement to the United States House of Representatives, Committee on Financial Services, April 20, 2010

___________: Those Who Forget the Regulatory Successes of the Past are Condemned to Failure

Michael Hudson: Reforming the U.S. Financial and Tax System

Steve Keen: Manifesto

Levy Institute: Beyond The Minsky Moment
(a group publication by the Levy Economics Institute, Monetary and Financial Structure Research Program: Dimitri B. Papadimitriou, Jan Kregel, James K. Galbraith, L. Randall Wray, Greg Hannsgen, Marshall Auerback, Jörg Bibow, Steven M. Fazzari, Michael Hudson, Thorvald Grung Moe, Robert W. Parenteau, Sunanda Sen, Willem Thorbecke, Éric Tymoigne)

Fed's Fisher and TBTF. The one thing he understands.

Federal Reserve Bank of Dallas President Richard Fisher extended his long-running effort to break up the biggest banks Wednesday at a time when the idea is gaining currency with policymakers on both sides of the aisle. Long a critic of letting financial firms grow "too big to fail," Mr. Fisher detailed in a prepared speech Wednesday an approach he said would prevent banking firms from growing so large and complex that their failure could undermine the entire financial system. The Dallas Fed chief spoke to the Committee for the Republic at the National Press Club.

Fed's Fisher: Limit Government Aid to Traditional Bank Unit
Kristina Peterson and Victoria McGrane
(h/t Ryan Harris in the comments)

Ashwin Parameswaran — Unifying The Fiscal And Monetary Functions: A Policy Proposal

With the emergence of interest-bearing money, the concept of ‘money supply’ is now meaningless. Theobsolescence of interest-free money is not just a consequence of payment of interest on reserves by the Fed (as Steve Waldman argues). If short-tenor government bonds are liquid enough, then no one needs to hold non interest-bearing deposits for any meaningful length of time. For example, let us assume that rates are at 6%, the Fed has sold off all its QE holdings and is no longer paying interest on reserves. Therefore, bank deposits yield no interest. In such a scenario, most individuals can put most of their risk-free investments into an ETF or index fund invested in T-bills that pays say 5.80% (with 20 bps fees). In a world of such liquid risk-free investments, there is simply no need to hold cash except immediately before the need to make a payment arises.

Macroeconomic Resilience — towards a more resilient macroeconomy
Unifying The Fiscal And Monetary Functions: A Policy Proposal

Ashwin Parameswaran

This proposal is along the lines of outline I've suggested of separating "retail" banking from commercial banking and having government take over retail since the public is already on the hook. Ashwin Parameswaran is a former banker and knows a lot more about how to do this than I do. His proposal is definitely worthy of consideration.

Jan Kregel — Minsky and the Narrow Banking Proposal: No Solution For Financial Reform

Before the law has even been fully implemented, the inadequacies of the regulatory approach underlying the Dodd-Frank Act are becoming more and more apparent. Financial scandal by financial scandal, the realization is hardening that there is a pressing need to search for more robust regulatory alternatives.

The real challenge for financial reform is to develop a vision for a financial structure that would simplify the system and the activities of financial institutions so that they can be regulated and supervised effectively. Some paths to such simplification, however, are not worth treading. Against the backdrop of renewed present-day interest in the Depression-era “Chicago Plan,” featuring 100 percent reserve backing for deposits, Senior Scholar Jan Kregel turns to Hyman Minsky’s consideration of a similar “narrow banking” proposal in the mid-1990s. For reasons that eventually led Minsky himself to abandon the proposal, as well as reasons developed here by Kregel that have even more pressing relevance in today’s political climate, plans for a narrow banking system are found wanting.

Levy Institute Policy Paper

Minsky and the Narrow Banking Proposal: No Solution For Financial Reform
Jan Kregel

(h/t Michael Stephens via email)

Scott Fullwiler tweets

stf18: I've always said 100% reserves misses fundamental necessity of liquidity/overdrafts to pvt sector; Jan Kregel agrees.

stf18: Kregel p6 "the real problem lies in the way that regulation governs provision of liquidity in financial system" EXACTLY 

Julio Godoy — Bankers or ‘Banksters’?

European media, political leaders, and the citizenry are bashing bankers again, overtly calling them at best accomplices of numerous illegal activities, at worst downright criminals.

The best example of this new wave of anger against bankers is the use of the portmanteau word “bankster” (a combination of banker and gangster), which has become commonplace in media, even in non English-speaking countries.

The term, first coined in the 1930s during the Great Depression and which resurfaced in British media in 2009, appeared on the front page of the French daily Libération on Jul. 18.

Political leaders critical of banks have so far refrained from using the word but everyone else has been having a field day with it.
In a short white paper on banks’ policies released Jul. 21, the head of Germany’s leading opposition Social Democratic Party (SPD), Sigmar Gabriel, accused bankers of “blackmailing governments and states with the (threat) of domino bankruptcy”, of “complicity with criminal activities”, such as tax evasion and money laundering, and of “screwing their own clients”.

Even those commentators who dismissed Gabriel’s banker bashing as political populism agreed that the managers of international private financial corporations have recently done large disservices to their business and their clients.
The list of genuine grievances is long:

****
For independent economists, such delay in establishing new regulation of an obviously rotten industry is proof of the lack of political will among governments to get to the root of the crisis.
“Five years into the worst financial crisis in history, all attempts to regulate banks and funds remain dead letter,” French economist Paul Jorion told IPS. “Despite abundant evidence that (banks and investment funds) cheat all over, again and again, no new rule has been introduced.”

Instead, he added, “the European Union and governments continue to deregulate, pushing their own citizenry into abject misery.”

Read it at IPS | Inter Press Service
Bankers or ‘Banksters’?
By Julio Godoy

John Carney — Sandy Weill: The Guy Who Made the Bank Monster

So the inventor of the financial superstore has finally turned against his creation.

Read it at CNBC NetNet
Sandy Weill: The Guy Who Made the Bank Monster
by John Carney | Senior Editor