The HSBC Scandal: A Red Flag for U.S. Regulators?

NEP’s Bill Black appears on [email protected] discussing the HSBC scandal with Jennifer Blouin. You can see the story and hear the podcast here.


One response to “The HSBC Scandal: A Red Flag for U.S. Regulators?

  1. For me the highlight of that riveting podcast was the discussion of “Gresham’s Dynamic,”

    “Economist George Akerlof wrote about “Gresham’s dynamic” in his famous 1970 article, “The Market for Lemons: Quality Uncertainty and the Market Mechanism.” This paper by discussed information asymmetry, which occurs when the seller knows more about a product than the buyer. (A lemon is a slang term for a car that is found to be defective only after it has been bought.) Later, Akerlof, Michael Spence, and Joseph Stiglitz jointly received the Nobel Memorial Prize in Economic Sciences in 2001 for their research related to asymmetric information.

    In his paper, Akerlof wrote: “Dishonest dealings tend to drive honest dealings out of the market. The cost of dishonesty, therefore, lies not only in the amount by which the purchaser is cheated; the cost also must include the loss incurred from driving legitimate business out of existence.” Akerlof posited that Gresham’s Law – or Gresham’s Dynamic as he employed it and called it – wasn’t just related to money; it also applied to all businesses. In essence, businesses run with bad ethics tend to drive those who possess good ethics out of the market. Obviously, this is not the result our society desires. …

    Thank you.