Category Archives: William K. Black

Modern Monetary Theory is On the March

By William K. Black
February 18, 2019     Bloomington, MN

Modern Monetary Theory (MMT) continues to advance rapidly.  We are past the first phase of reaction (first they ignore you), deeply into the second phase (then they attack you), and expanding the ranks of the third phase (then you win).  We are very early in the third phase, winning with increasing numbers of people, but still a minority view.

One of the proofs of MMT’s advances is a nearly respectable treatment by the Wall Street Journal as the feature of a news article.  The other major proof is the pathetic efforts of MMT critics quoted in the article to attack MMT.  The article, implicitly, admits that MMT scholars have repeatedly proved correct in their predictions that the existing and projected U.S. fiscal budget deficits would not trigger damaging shortages of real resources that will cause damaging levels of inflation.  The article, implicitly, admits that nations with fully sovereign currencies are vastly less vulnerable to economic injury from budget deficits.

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Cryptocurrency Firms Regularly Lose Codes and Money

Recent developments in the cryptocurrency world highlight the dangers of trading in this type of “coin.” But how important is cryptocurrency to the financial world and why should we care? NEP’s Bill Black appears on The Real News to discuss this. You can view with transcript here.

AOC# and MMT Spook the AEI

William K. Black
January 17, 2019     Bloomington, MN

AOC# drives Republicans berserk.  Booing her, and only her, at the ceremony admitting the members of Congress, raging at her for dancing – yes dancing – in a college video, and attacking her for having a nickname (“Sandy”) in high school demonstrate the degree of derangement and the pathetic ammunition they have found in their failing efforts to discredit her.  MMT has become an indirect beneficiary of this derangement.  AOC# has expressed support for MMT – so the right is now eager to reach the famous second stage of opposition to good ideas (‘first they ignore them, then they attack them’).  It is far better for the right to attack our good ideas, than ignore them.  As with the right’s attacks on AOC#, the nature of their attacks on MMT is laughably extreme and nonsensical.  When they attack MMT, they spread our views.

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Trump’s Version of ‘Let Them Eat Cake’

By William K. Black
January 14, 2019     Bloomington, MN

Queen Marie-Antoinette of France was libeled by the claim that when she was told that her starving peasants could no longer find bread to eat, she responded “then let them eat cake.”  (If you want to get precise she supposedly said let them eat ‘brioche.”)  There is no evidence she said any such thing.

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Trump CFPB Plans Obscene Change to Payday Lender Rule

William K. Black
January 14, 2019     Bloomington, Mn

Kate Berry, the American Banker reporter that covers consumer financial protection, has written another important article about the continuing horror story of Trump’s increasingly successful efforts to pervert the Consumer Financial Protection Bureau (CFPB) into an agency dedicated to harming consumers and protecting our Nation’s most predatory lenders.  Unfortunately, her January 14, 2019 article is behind a paywall.

The Predatory ‘Sweet Spot’

The context is one of the CFPB’s most important and useful anti-predatory lending rules by payday lenders.  Payday lenders often charge working class Americans interest rates well above 100 percent.  (In Missouri, a hotbed of predation, they can charge more than 500 percent.)  The ‘sweet spot’ for payday lenders is borrowers who will be unable to repay promptly the initial loan (with an obscene, but vastly lower initial interest rate).  This sets off a cycle of additional borrowing and extending of payday loans that places the borrower into a debt spiral that frequently results in bankruptcy.  Payday lenders, who exist to predate on customers, make their extraordinary profits largely from borrowers who cannot repay the initial payday loan when it comes due, but have some income and will continue to reborrow and attempt to repay for months.  Predatory payday lenders optimize by finding this ‘sweet spot’ of those who have enough income and a compelling intent to repay – but not enough income to pay off the entire series of loans.

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How Immoral are Laissez Faire Ideologues? Ask about Drones.

William K. Black
December 17, 2018     Bloomington, MN

In 1983, Federal Home Loan Bank Board Chairman Richard (Dick) Pratt published his Agenda for Reform about how to deal with the savings and loan debacle.  He had just made that debacle inevitable by deregulating and desupervising the industry.  In his Agenda, he called for some protective steps (none of which he took or even proposed as rules), but overwhelmingly called for more deregulation and desupervision while promising that the raging fraud epidemic he had super-charged could not occur.

Pratt put three quotations on the front and back covers of his Agenda.  Two of the passages admitted his knowledge that deregulating and desupervising the industry at a time when it was endemically insolvent could greatly increase losses.  Both of those quotations went on to explain Pratt’s real concern about those increased losses to the public – they might discredit deregulation.  The greatly increased losses to the public did not horrify him.  The fact that that deregulation would trigger those losses did not horrify him.  The thing that horrified him was that the public might realize that deregulation and desupervision caused widespread fraud and losses and this could lead the public to block, or even roll back, dangerous deregulation and desupervision.

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Countering Chinese Accounting Control Fraud and Predation Against U.S. Investors

William K. Black
December 18, 2018     Bloomington, MN

On December 13, 2018, the Wall Street Journal published an interesting op ed by Jesse M. Fried, a famous law professor in multiple areas of corporate law, and Matthew Schoenfeld, who works at a hedge fund that is the leading funder of civil lawsuits, primarily fraud and tort suits.  The title is “Will China Cheat American Investors?  The answer, of course, is yes – it will continue to cheat American (and non-American) investors.  Fried also has a strong background in economics, which is relevant to his op ed and my blog article.

The op ed is interesting in part because it was published just after a documentary on Chinese stock fraud (“The China Hustle”) had its general video release.  The China Hustle explores the pervasive defrauding of primarily U.S. investors by those that control Chinese corporations.  Though the documentary does not make the point, it is describing “accounting control fraud.”  A ‘control fraud’ is a seemingly legitimate entity used by the person that controls it as a “weapon” to defraud or predate.  For the sake of brevity, I use “CEO” rather than “the person that controls the corporation.”

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Trump Models His War on Bank Regulators on Bill Clinton and W’s Disastrous Wars

William K. Black
December 13, 2018     Bloomington, MN

The Wall Street Journal published an article on December 12, 2018 that should warn us of coming disaster:  “Banks Get Kinder, Gentler Treatment Under Trump.”  The last time a regulatory head lamented that regulators were not “kinder and gentler” promptly ushered in the Enron-era fraud epidemic.  President Bush made Harvey Pitt his Securities and Exchange Commission (SEC) Chair in August 2001 and, in one of his early major addresses, he spoke on October 22, 2001 to a group of accounting leaders.

Pitt, as a private counsel, represented all the top tier audit firms, and they had successfully pushed Bush to appoint him to run the SEC.  The second sentence of Pitt’s speech bemoaned the fact that the SEC had not been “a kinder and gentler place for accountants.”  He concluded his first paragraph with the statement that the SEC and the auditors needed to work “in partnership.”  He soon reiterated that point:  “we view the accounting profession as our partner” and amped it up by calling accountants the SEC’s “critical partner.”

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Douthat’s Mendacious Meritocracy Myth

William K. Black
December 8, 2018      Bloomington, MN

The funeral services for President George HW Bush triggered Ross Douthat’s nostalgia for the “aristocratic virtues of the old WASP establishment, and a disappointment with the meritocracy that has risen in its place.”  This column ignores his nostalgia and alleged virtues and discusses briefly his bizarre assumption that a “meritocracy” runs America.  Given the 2008 Great Financial Crisis (GFC) and President Trump, I thought that the meritocracy fantasy was dead.  We are far closer to anti-meritocracy (a kakistocracy).    Continue reading

Who Said This?

William K. Black
Associate Professor of Economics and Law, UMKC
December 5, 2018     Bloomington, MN  55437

I cannot write many blogs during the fall semesters because I teach four classes (I co-teach one of them).  The fall term of instruction at UMKC is now over so I am writing one piece before turning to grading.  I have recently done additional research on a topic I know is of great interest – the prosecution of elite white-collar criminals.  I have organized it in the form of a game in which the reader guesses who authored the quoted passage. Continue reading