Neil Wilson — Running a Modern Money Economy

MMT is a description of the existing monetary system and its interaction with the production mechanisms. It takes a unique viewpoint that highlights opportunities that remain out of sight to traditional methods.

From this viewpoint comes a number of suggested policy proposals. So how do those proposals help keep things running smoothly?

Modern Money Matters
Running a Modern Money Economy
Neil Wilson

Bill Black to Hillary Clinton — It's "fraud," not "shenanigans"

Former Secretary of State Hillary Clinton, in her debate with Senator Sanders minutes ago, said that she went to Wall Street and told them to stop their “shenanigans.” The context was that she was being asked to respond to the complaint that she was too close to on Wall Street billionaires. She had every incentive, therefore, to demonstrate how tough she would be on Wall Street. In that context, the best she could muster was the pusillanimous “shenanigans.” …

Hillary cannot bring herself to use the “f” word in the context of Wall Street CEOs leading the largest and most destructive fraud epidemics in history – frauds that made them spectacularly wealthy. A few minutes later, Bernie said that “fraud” was Wall Street’s business model.…

New Economic Perspectives

Liar’s Loans, Plus Loan Brokers, Equals Fraud Heaven

Hillary, the Banksters Committed “Fraud” not “Shenanigans”

William K. Black | Associate Professor of Economics and Law, UMKC

Diane Coyle — The devil take the debt

Mini-review of Adair Turner's Between Debt and the Devil: Money, Credit and Fixing Global Finance .

Given the difficulty of tackling the three drivers of the crisis – a limited supply of land and real estate, income inequality and global imbalances – what does Turner, a former head of the FSA, recommend? His answers are interventionist, suggesting a total rejection of the idea that finance can be left to ‘the market’. “To achieve a less credit-intensive and more stable economy, we must … deliberately manage and constrain lending against real estate assets,” he writes. He also advocates central bank monitoring of credit growth, constraining it when necessary; taxation of land values; taxation of debt to bring its treatment in line with taxation of equity; and raising bank equity ratios and minimum liquidity requirements (a step advocated by every, but every, economist who has given a moment’s thought to the crisis – shocking that the banks have lobbied their way out of this minimal step towards systemic stability).…

The Enlightened Economist
The devil take the debt
Diane Coyle | and a former adviso freelance economistr to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation

Marshall Auerback — Andy Haldane: The Counter-Reformation in Banking Has Just Begun

“Too big to fail” banks create three disastrous problems, any one of which should have been sufficient decades ago to convince our politicians to get rid of them.

1. They make a mockery of the phrase “free markets.”

2. TBTF bank failures risk causing global financial crises.

3. TBTF banks create so much economic power that it inherently translates into dominant political power and cripples our democracy by creating crony capitalism and the corresponding problem of “too big to jail.”

To judge from Haldane’s message, we still have a long way to go. For one thing, perhaps for reasons of time, his speech didn’t once mention the so-called “shadow banking system,” even though almost three-quarters of today’s credit intermediation in the U.S. takes place outside the conventional banking system. The big conclusion that one inevitably draws from Haldane’s analysis is that the structure of banking should be reorganized to promote both economic stability and economic development. Banking used to be a simple boring job; it needs to go back there.

The Council of Trent took place over a period of 40 years. If one is to interpret the underlying message of Haldane’s speech in Trento, we’ll be lucky if we can deal with today’s counter-reformation in banking in less than half that time.

INET
Andy Haldane: The Counter-Reformation in Banking Has Just Begun
Marshall Auerback

Clint Balinger — Question for Mosler/Mitchell/MMT: Bank Reform, Assets or Liabilities?

Warren Mosler, in his excellent recommendations for bank reform (similar to Bill Mitchell’s proposals 
and others) focuses on the asset side of banks, and writes: 

“The hard lesson of banking history is that the liability side of banking is not the place for
market discipline.”

Mosler doesn’t discuss this history or reasoning any further though. Can anyone elaborate on this banking history? And how it shows that disciplining the liability side of banking is not a good idea?

Clint Balinger
Question for Mosler/Mitchell/MMT: Bank Reform, Assets or Liabilities?

The asset side of a bank's balance sheet records the loans. Banks loan using the five "C"s of credit: character (usually based on credit history), capacity (ability to service the obligation from income), capital (net worth), collateral (assets that secure the debt), and conditions (state of the economy and borrower's role in it). Generally, it is assumed that banks will act prudently overall in extending credit, since their capital is being placed at risk. However, with the moral hazard created by, e.g., deposit guarantees, banks may fail to follow best practices. Therefore, government acting through its agencies impose regulations designed to offset this hazard. Often such regulations are imposed on the liability side, e.g., reserves or capital requirements. 

However, the problem arises with the quality of the loans that are extended, and these show up on the asset side. Thus, government can address the asset side by regulating how credit is extended, e.g., down payment, and quality of collateral. 

For example, the housing crisis developed out of imprudent credit extension, and the financial crisis grew out of the overvaluation of collateral. So a lot of loans got extended at a much higher value than was proper under best practices. 

Government could have intervened with rules regarding the valuation of collateral when it was clear that the run-up in valuation was exceeding the ability to recover based on the underling collateral. Regulators should also have been sharper-eyed about the collusion of mortgage brokers and appraisers, especially after the FBI warned of rampant irregularities in the mortgage business as early as 2004.

LIfted from the comments:

Scott Fullwiler points out: "There's certainly some rationale for regulating the liability side in MMT, though not necessarily the way most people think. See this by Randy: The Lender of Last Resort: A Critical Analysis of the Federal Reserve’s Unprecedented Intervention after 2007 (April 2013)

Warren Mosler — So Why Should Banks be Allowed to be in the Wealth Management Business?

There is no public purpose served by allowing banks to be in the wealth management business

Here is a article I wrote for the Huffington Post in 2010 on how I would regulate banking. Feel free to distribute.

Soft Currency Economics
So Why Should Banks be Allowed to be in the Wealth Management Business?
Warren Mosler

See also Frances Coppola, Turning back the clock? The future of retail banking

Graham Hodgson — Dirk Bezemer about Positive Money

Bezemer opposes, Hodgson responds.

Positive Money
Dirk Bezemer about Positive Money
Graham Hodgson