Global Money Notes #26 Countdown to QE4? — Zoltan Pozsar

Repo.

Credit Suisse
Global Money Notes #26 Countdown to QE4?

Zoltan Pozsar

Warren Mosler and the Great American Banking Myth — George Selgin

Although I've taken issue with various MMT claims in the past (see, e.g. here and here), I've grown to respect several Modern Monetary Theorists. Far from being ill-informed, people like Eric Tymoigne and Nathan Tankus (the list is by no means exhaustive–these happen to be two whose work I know best) know a lot more than many orthodox economists do about the workings of the U.S. monetary system. Knowing this, I'm not inclined to accuse Modern Monetary Theorists of being ignorant just because I disagree with many of the school's positions and arguments.

But on the subject of bank runs, at least, Warren Mosler shows no signs of being well-informed. Although his talk is laced with knowing chuckles, along with disparaging references to "so-called neo-liberals" who are so foolish as to think markets work in banking, his attitudinizing is so much bluff and bluster. The truth is rather that, so far as knowledge of runs is concerned, Mosler is no less destitute than some of the banks whose demise he so heedlessly laments.

George Selgin disputes Warren Mosler's assertions about the dire consequence of free banking, namely, bank runs.

I would have no problem with allowing free banking for institutions that are not members of the central bank's payments system and have no recourse to either the lender of last resort function or government guaranteed deposit insurance. This would mean that such institutions would have to either issue their own private notes as liabilities of the institution or get currency from raising capital or deposits. A sovereign government would be advised not accept such liabilities in payment of obligations to it in place of the currency that the government issues, since this would be ceding sovereignty.

I would also require such institutions to advertise that customers' have no recourse in the case of bank failure other than the civil courts. Let people take a chance if they choose but the choice should be an informed choice. Thus, I would also require all financial institutions other than banks that are member of the government payments system to adopt the partnership model that characterized financial institutions before they were allowed to incorporate and thereby limit the liability of the owners. Note that is is not bank regulation but rather definition of legal liability.

"Let a hundred flowers bloom." Chairman Mao.

Alt-M
Warren Mosler and the Great American Banking Myth
George Selgin | senior fellow and director of the Center for Monetary and Financial Alternatives at the Cato Institute and Professor Emeritus of Economics at the University of Georgia.

McKinsey on transforming banking

Corporate banks have delivered steady returns but face daunting challenges. To succeed in the coming years, they need to find another gear.

McKinsey Insights
Building the corporate bank of the future

The digital transformation of any enterprise is a herculean task requiring a willingness to embrace cultural change, the ability to immerse the entire organization in the customer journey, and a total commitment to digitize to the core. DBS Bank Chief Information Officer David Gledhill shares his insights on DBS’s digital transformation with McKinsey’s Vinayak HV, a partner in the Singapore office....

Tidbit.

The first letters of Google, Amazon, Netflix, Apple, LinkedIn, and Facebook together spell GANALF. That was missing a D, and we, as DBS, fortunately have a D. So, our mission became how to become the D in GANDALF....

Transforming a bank by becoming digital to the core

Eric Tymoigne — Money and Banking Post 21: The Interest Rate

In Post 20, a lot is said about the role that the rate of return on financial instruments—the interest rate—plays on the pricing on securities, but little was said about what determines that rate of return. Two competing theoretical frameworks explain what influences the interest rate, one of them emphasizes the role of real factors and the other emphasizes monetary factors.

New Economic Perspectives
Money and Banking Post 21: The Interest Rate
Eric Tymoigne | Associate Professor of Economics at Lewis and Clark College, Portland, Oregon; and Research Associate at the Levy Economics Institute of Bard College

Robert C. Hockett & Saule T. Omarova — The Finance Franchise

The dominant view of banks and other financial institutions is that they function primarily as intermediaries, managing flows of scarce funds from those who have accumulated them to those who have need of them and can pay for their use. This understanding pervades textbooks, scholarly writings, and policy discussions – yet it is fundamentally false as a description of how a modern financial system works. Finance today is no more primarily “intermediated” than it is pre-accumulated or scarce.

This Article challenges the outdated narrative of finance as intermediated scarce private capital and maps the basic structure and dynamics of the financial system as it actually operates. We begin by developing a three-part taxonomy of ways to model financial flows – what we call the “credit-intermediation,” “credit-multiplication,” and “credit-generation” models of finance. We show that only the last model captures the core dynamic of a complex modern financial system, and that the ultimate source of credit-generation in any such system is the sovereign public, acting primarily through its central bank and treasury. We then trace the operation of this dynamic throughout the financial system, from the banking sector, through the capital and “shadow banking” markets, all the way out to the “disruptive” frontier of peer-to-peer digital finance.

What emerges from this retracing of the financial system’s operative logic is a comprehensive view of modern finance as a public-private franchise arrangement. On this view, the sovereign public acts effectively as franchisor, licensing private financial institutions to earn rents as franchisees in dispensing a vital public resource: the public’s monetized full faith and credit. We conclude the Article by drawing out some of the potentially transformative analytic and normative implications of a paradigmatic shift from the orthodox theory of financial intermediation to the franchise view of finance.

To read the complete article, click “VIEW PDF” below.
:: VIEW PDF

Cornell Law Review
The Finance Franchise
Robert C. Hockett & Saule T. Omarova

Eric Tymoigne — Money and Banking – Part 19: Financial institutions: An overview

Eric adds another chapter to his book draft. The previous chapters can be found here. This is course on money & banking from the MMT perspective.

New Economic Perspectives
Money and Banking – Part 19 (A): Financial institutions: An overview

Money and Banking – Part 19 (B): Financial institutions: An overview

Money and Banking – Part 19 (C): Financial institutions: An overviewEric Tymoigne | Associate Professor of Economics at Lewis and Clark College, Portland, Oregon; and Research Associate at the Levy Economics Institute of Bard College

Mark Buchanan — Market complexity also makes for instability

Looks like another fallacy of composition is at work in finance to increase system instability by assuming that increasing the stability of individual institutions will increase the stability of the system as a whole. This post suggest that this is apparently not the case owing to network effects.

Physics Perspective
Market complexity also makes for instability
Mark Buchanan

Matias Vernengo — History of Central Banks tutorial

Of interest to people interested in central banking, money & banking, finance, and economic history.

Naked Keynesianism
History of Central Banks tutorial
Matias Vernengo | Associate Professor of Economics, Bucknell University