Author Archives: William Black

Quis custodiet ipsos custodies? Jean Tirole’s Proposal to Appoint Felons to Monitor CEOs

By William K. Black
February 18, 2017     Roma, Italia (5th in my series on Jean Tirole)

When in Rome, trot out a venerable Latin quotation from Juvenal: “Who will guard the guards?”  I have “buried the lead” in this series of article about Jean Tirole by relegating my discussion of his proposal for fixing the problem of the criminal CEO – appoint a criminal “monitor” – to the fifth article in this series.  His proposal is in his 2001 article titled “Corporate Governance.”

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Jean Tirole’s Core Contradiction of Corporate Governance

By William K. Black
February 14, 2017     Bloomington, MN (4th in a series on Jean Tirole)

In my second article in this series I began to discuss Tirole’s 2001 article (“Corporate Governance”), which contains this remarkable admission about orthodox economists’ ‘group faith’ (no thinking involved) that results in the “implicit assumption” that some unexplained force “perfectly” protects employees, creditors, and the public from predation by firms.

The economists’ implicit assumption is that employees, suppliers, customers, and other natural stakeholders are protected by very powerful contracts or laws that force controlling investors to perfectly internalize their welfare whereas the contractual protection of investors when the natural stakeholders have control is rather ineffective, and so investors must receive the control rights. The details of the argument have not yet been worked out [p. 4].

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Andrew Ross Sorkin’s Attempt to Make Tim Geithner a Hero

By William K. Black
February 12, 2017       Bloomington, MN

I am watching the film Too Big to Fail based on Andrew Ross Sorkin’s book of the same name.  It led me to check out the price of the used book, which has fallen to $1.02, which is low enough that I am willing to buy a copy of the book, particularly since not a penny will go to Andrew Ross Sorkin.  The financial analytics displayed in the movie and the book are so poor and dishonest that I need to have a copy by my keyboard as an inspiration to keep trying to cut through the calculated dishonesty about Wall Street pumped out nearly every day in the pages of the New York Times.

The movie starts with the imminent failure of Lehman.  It is an astonishingly sympathetic portrait of Wall Street, Hank Paulson, Tim Geithner, and Ben Bernanke.  The movie invents a scene in which the Treasury leadership explains “in English” the causes of the crisis to the Treasury PR person.  There is not a word about the three fraud epidemics that hyper-inflated the bubble, drove the crisis, and produced the Great Recession.  As one expects of a Sorkin tale, it is all about personalities and “great men.” (Women are rare and powerless, even FDIC Chair Sheila Bair.)  The movie and book have a patina of financial jargon that Sorkin thinks constitutes analytics, and a nearly total failure to probe the Wall Street BS about the crisis.

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Jean Tirole Proves Why Heterodox Economists are Essential to Save the Field

By William K. Black
February 12, 2017     Bloomington, MN (Part 3 in my Tirole series)

I discussed Jean Tirole’s 2001 article (“Corporate Governance”) and this remarkable admission about orthodox economists in my second article in this series.

The economists’ implicit assumption is that employees, suppliers, customers, and other natural stakeholders are protected by very powerful contracts or laws that force controlling investors to perfectly internalize their welfare…. [The] details of the argument have not yet been worked out.”  [p. 4]

I explained that this was a particularly pernicious example of “group think” that furthered the dominant ideology of orthodox economists (laissez faire) and served their self-interest in getting hired, published, honored, and advanced.  I explained that it was anti-scientific and failed Tirole’s test of what it took to be a scientist.  I noted that Tirole’s admissions also demonstrate the dishonest nature of his and his disciples’ attacks on heterodox economists and promised to discuss that point in this subsequent article.

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Jean Tirole Fails the Tirole Test of What Makes an Economist a Scientist

By William K. Black
February 11, 2017     Bloomington, MN (Part 2 in my Tirole series)

In his letter to the French education minister denouncing French heterodox economists as a “motley crew” of academic failures, Jean Tirole, the 2014 Nobel Laureate in Economics, stated his test for the standard for an economist to be a scientist.

Secondly, like the other great scientific disciplines, modern economic science relies on the continuous questioning of its hypotheses, testing its models against the facts, and abandoning theories that fail the test of reality.

Tirole and his Toulouse school of orthodox economists fail the Tirole test.  Their models, policies, and theories, typically “fail the test of reality” – yet they do not abandon the falsified theories.  Further, they ignore reality-based scholarly work.  Worse, as Tirole admits, the Toulouse school’s failures are typical of orthodox economists.  Tirole shows that the foundational errors fall into three categories, and the nature of those errors supports three other underlying errors.  Tirole’s admissions also demonstrate the dishonest nature of his and his disciples’ attacks on heterodox economists, as I will explain later in this series of articles.

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The “Motley Crew” of Heterodox Economists Freaking Out France’s Theoclassical Economists

William K. Black
Dublin, Ireland     April 4, 2017

I presented a talk today at the Trinity Economic Forum in Dublin.  The Forum is a wonderful annual event run by the students that brings together thoughtful and forceful economic speakers from diverse viewpoints.  Steve Keen also gave a talk at the Forum and I thank him for bringing the subject of this column to my attention.  France is the home of some of the most theoclassical economists in the world.

Orthodox French economists, a bastion of laissez faire, are enraged that theoclassical economics is in increasing disrepute and heterodox economists are leading powerful challenges to the doyen of French economic orthodoxy, Jean Tirole.  Tirole received the Nobel Prize in economics in 2014 for his work on “regulating” oligopolies.  Tirole denounced all heterodox economists as a “motley crew” and claimed that they had failed to meet “internationally recognized norms of evaluation” for science.  Triole stated that it would be a “catastrophe” if heterodox economists taught French students.

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Terror, Trolls, and Trump

By William K. Black
January 30, 2017     Bloomington, MN

How far have Fox “News” and the self-described “Deplorables” fallen?  They rushed after a lethal terror attack on Muslims in Quebec City to declare that Muslims must have committed the attack.

“So, I retweeted the wrong pics, but I was right about the #QuebecShooters being freaking Muslims!!

Close, if the Deplorable meant by his phrase “I was right” “I was wrong.”

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CalPERS Seek to Destroy its Most Effective Director

By William K. Black
January 26, 2017     Bloomington, MN

CalPERS was once the crown jewel of institutional investors, known for combining competence, integrity, and care.  It invests funds and pays the pensions of California State workers.  Over a decade ago, however, CalPERS’ senior managers and board became a cesspool that stood for the opposite.  CalPERS’ corrupt culture is deeply rooted. Various California’s Treasurers have tried to clean up the mess, but the reforms have failed because few senior officers and board members have been willing to take on the rot with the forcefulness required.

I worked closely with board members in my role as the general counsel of Federal Home Loan Bank of San Francisco.  It takes enormous courage to confront senior corporate officers or fellow-directors when they are maintaining a solid front.  We had a good board, officers, and institution.  In an institution with a deeply rooted, sick culture like CalPERS, everything works against forceful directors trying to cure the rot.  They have to confront a phalanx of directors and officers who are genuinely horrified that someone would disturb the highly prized decorum of the boardroom.  The officials maintaining that the sick culture is not sick become enraged at anyone that blows the whistle on their unwillingness to act aggressively to cure the sick culture.

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When will the EU and the ECB Stop Torturing the Greeks?

By William K. Black
January 30, 2017     Bloomington, MN

The troika refers to the European Union (EU), European Central Bank (ECB), and the International Monetary Fund (IMF).  The IMF, traditionally, was the greatest proponent of any international entity of inflicting extreme austerity on nations suffering economic crises.  The IMF’s economists have increasingly reviewed the evidence and concluded that austerity reduces growth and that putting nations into inescapable debt traps is stupid and harmful.  The EU and the ECB, however, have been impervious to these economic studies and intent on hammering the Greeks.  The purported EU “bailout” of Greece is an exercise in EU propaganda.  Overwhelmingly, EU aid involving Greece goes to Greek banks – and the bank bailout bails out the creditors of Greek banks.  Those creditors, overwhelmingly, are EU banks.

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Why the Republicans Cannot “Replace” Obamacare

By William K. Black
January 27, 2017     Bloomington, MN

I have just listened to Lawrence O’Donnell’s program on Friday, January 27, 2017.  It was a strong program, but I offer these friendly amendments on his discussion of the Washington Post story titled “Behind closed doors, Republican lawmakers fret about how to repeal Obamacare.”  O’Donnell and his guests spoke exclusively of how difficult it was for the Republicans to come up with a plan to replace Obamacare and making the point that the leaked transcript of the closed Republican meeting proved that the Republicans had no plan.  The thrust of the comments was that the explanation for the difficulty was the technical complexity of the issues and differences of policy views among congressional Republicans.  Neither explanation is accurate.  The problem is much more basic, and explains why Republicans did not use their exceptional leverage to amend the draft Affordable Care Act that would have improved it, why they have not come up with a replacement plan in seven years,  and why they will not be able to come up with a replacement plan in the future.

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