Sunday, June 29, 2014

Randy Wray — Something is Rotten in the State of Denmark: The Rise of Monetary Cranks and Fixing What Ain’t Broke

On money cranks.

Economonitor — Great Leap Forward
Something is Rotten in the State of Denmark: The Rise of Monetary Cranks and Fixing What Ain’t Broke
L. Randall Wray | Professor of Economics, University of Missouri at Kansas City

Crossposted at New Economic Perspectives and Naked Capitalism. Interesting comments at all venues.


Dan Kervick said...

What is needed are concrete proposals for promoting financial stability, and preventing the recklessness of the few from rippling through the economy and damaging the lives of the many. It's not enough to refuse to bailout financial firms that lend stupidly, or to put shareholders on the hook for all the losses. In a modern economy where retirement funds are institutionally invested in the financial system, damage to the shareholders is damage to the many who are invested in those shares. What is needed are mechanisms that prevent the failures from happening in the first place.

Jose Guilherme said...

How about putting also the managers on the hook - legally - for all losses?

If they risked coming out dirt poor in case of bank failure they would likely think twice before promoting reckless lending in pursuit of short term profit as well as bonuses.

Ralph Musgrave said...

Randy’s article is complete nonsense. See:

Jose Guilherme, “Putting managers on the hook” is a great idea. Problem is of course that the “managers” suck up to politicians and contribute to politicians’ election expenses. Plus the “managers” attend the same cocktail parties as politicians and send their children to the same private schools. Now one doesn’t want to spoil one’s next cocktail party by sending the host or one of the other guests to prison, does one?


The Chicago plan / full reserve banking achieves much of what you want. Re “promoting financial stability”, full reserve brings far better stability because if a bank or other lending entity is funded just by shareholders (which is what full reserve involves) than banks cannot suddenly go insolvent. No more “Lehmans”. That’s a big improvement, isn't it?

Re your concern about “retirement funds” which lose out, those funds already invest billions in a way that involves possible loss: the stock exchange. In the UK, the final payout or pension provided by many retirement schemes is SPECIFICALLY RELATED to stock market performance. Doubtless it’s the same in the US. And it’s very difficult to avoid that risk. Investment involves risk. You can’t escape that.

NeilW said...

Banks can go insolvent under full reserve the same as they can anywhere else.

There is always 7 day money maturing today. There is always 30 day money maturing today. There is always 90 day money maturing today.

If those are not rolled over, then the bank becomes insolvent.

A retreat to 'National Savings' works exactly the same under an 'in specie' system as it does under an 'insured' system - because 'in specie' and 'insured' systems are operationally identical.