Author Archives: William Black

Dodd-Frank Was Designed to Fail – and Trump Will Make it Worse

By William K. Black
April 17, 2017     Bloomington, MN

William Cohan’s April 14, 2017 column in the New York Times discusses Daniel Tarullo’s swan song talk on bank regulation.  Here are the key passages from that column for the first half of my discussion.

Much to the relief of Wall Street executives, who feared and hated him in equal measure, Daniel K. Tarullo left his powerful perch on the Federal Reserve Board of Governors last week, but not before delivering one last lecture on how big banks should be regulated in his absence.

His swan song was pretty surprising, all things considered. It also went largely unnoticed, much like Mr. Tarullo himself during his eight years at the Federal Reserve. Many people have never heard of him, even though his decisions affected their lives in ways big and small.

Once described as the “Wizard of Oz,” for the power he wielded behind the scenes, Mr. Tarullo was appointed to the Federal Reserve by President Barack Obama in January 2009. At the Fed, Mr. Tarullo took over the important responsibility of regulating the big Wall Street banks, a job that, understandably, had been the purview of the president of the Federal Reserve Bank of New York. The oversight moved to Washington from New York in the wake of the financial crisis.

“It was obvious that a lot in the U.S. regulatory system had not worked particularly well before the crisis,” Mr. Tarullo said in a 2015 interview with The Wall Street Journal.

Cohan was writing about a different subject, one I discuss briefly in the second half of this article, so he did not discuss the insanity described in these four paragraphs.  Here is the short version of that insanity.

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Ecuadorians Reject Neoliberalism in Presidential Race

NEP’s Bill Black appears on Rising Up With Sonali talking about Ecuadoreans and their choice of continuity by choosing a left-leaning government over a neo-liberal agenda in recent Presidential elections.

President of Richmond Fed Leaks Insider Information and Goes Free

NEP’s Bill Black appears on The Real News Network discussing the investigation into leaking of inside information and how it shows how banks and the Federal Reserve are riddled with conflicts of interest. You can view here with transcript.

Reality Virus Infects Kansas Legislators, Brownback Immune

By William K. Black
March 28, 2017      Bloomington, MN

The good news is that the Kansas legislature, the land of the lunatics, experienced an outbreak of the reality virus (first diagnosed and named by Steve Keen among neoclassical economists).  The bad news is that the Kansas’ Crazy-in-Chief, Governor Sam Brownback, has proven immune to the virus.

Brownback decided to put Art Laffer in charge of Kansas’ taxation policy.  Even neoclassical economists roll their eyes when it comes to Laffer’s claims that dramatic tax decreases lead to significantly increased net tax revenues.  Laffer’s batting average on this claim is .000 and his “proof” of his claim is a graph (the “Laffer curve”) that he drew that contradicts reality.  Brownback knew that Laffer was batting .000 on his claims and that Laffer never drops his claims when reality (repeatedly) falsifies his graph.  To no one’s surprise, Brownback’s tax cuts produced a fiscal disaster for Kansas.

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The 2016 Nobel Prizes in Economics Go to those Who Pushed Criminogenic Policies

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

How has the Swedish Central Bank’s committee that awards prizes in Economics in honor of Nobel responded to the field’s abject failures regarding the recent financial crisis and the Great Recession?  A lesser group would display humility, acknowledge its failures, and promise a fundamental rethink of the field.  Neoclassical economists, however, are made of sterner stuff.  The committee’s response is to praise the discipline for its theoretical advances and proposed policies related to finance, regulation, and corporate governance.  Eugene Fama, Jean Tirole, Oliver Hart, and Bengt Holmström exemplify this pattern.  This series of articles discusses the joint award in 2016 to Hart and Holmström.  In this introduction to the series, I outline the major errors that I will address in this series.

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Why Was Tom Perez Willing to be the New Democrats’ DNC Stalking Horse?

By William K. Black
February 22, 2017     Bloomington, MN

Hillary Clinton did not lose the presidential race because she is stupid.  The New Democrats have dominated the Democratic Party’s presidential candidates for decades.  This means that they are extremely good at internal Democratic Party politics.  The New Democrats faced a major challenge after Hillary’s loss to the worst presidential candidate in our Nation’s history.  The loss discredited the New Democrats’ leaders, policies, institutions, and funders.  It proved the accuracy of Tom Frank’s efforts to warn the Party about the price it would pay for abandoning the Party’s traditional working class base.

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Kenneth Arrow’s (Ignored) Impossibility Theorem

By William K. Black
February 22, 2017     Bloomington, MN

Kenneth Arrow, one of the giants of economics, has died at the age of 95.  He became a Nobel Laureate in 1972.  As a young lawyer in 1977, I saw him in action as an expert witness on the subject of risk.  The context was setting the rates for shipping oil through the Trans-Alaska Pipeline System (TAPs).  Arrow testified about the risks of oil prices falling.  The FERC administrative law judge thought such a scenario was ridiculous.  Within four years, oil prices fell sharply.  Arrow’s experience was a common one for economists dealing with lawyers – the ALJ ignored him.

The New York Times obituary for Arrow is revealing about how the conventional wisdom distorts economic theory in a predictably skewed fashion.  It begins by discussing Arrow’s “impossibility theorem,” which states that where there are more than two choices it is impossible to construct perfect majority choice systems.

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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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