The CFPB Arbitration Rule is Pro (Honest) Businesses

By William K. Black
July 11, 2017     Bloomington, MN

Politico has just published a column with a title and analytics that drive white-collar criminologists nuts:  “In a major setback for businesses, CFPB opens door to consumer class actions.”  Logically, the title should have read: “In an important step forward for consumers, investors, and honest bankers and lenders, CFPB begins to restore the rule of law to banking.”

The CFPB is the acronym for the Consumer Financial Protection Bureau.  The problem that led to CFPB to issue its new rule has six parts.  First, it is often profitable for lenders to abuse and defraud borrowers.  Second, lenders are able to do this because financial understanding is highly asymmetric.  Third, even if the borrower eventually spots the fraud or abuse it is rare that the typical borrower could profitably prove the fraud and recover enough funds in a lawsuit to (net of legal expenses) recover effectively and could never recover enough to deter future misconduct.  Fourth, the only potential legal remedy for the typical victim to recover and deter is the class action suit.

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London Grenfell Inferno: Who’s to Blame?

The Grenfell Tower Block fire in London is a predictable consequence of policies that can be traced to Margaret Thatcher, Tony Blair and Gordon Brown, as well as those of David Cameron and Theresa May, says NEP’s Bill Black on The Real News Network. You can view here with transcript.

Wall Street: It’s “Icky and Un-American” to ‘Short’ Frauds

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

The president of the New York Stock Exchange (NYSE) launched a coordinated attack on “shorts” that mirrored his rival’s (Nasdaq) attack.  The NYSE assault, however, used bizarre rhetoric.

“It feels kind of icky and un-American, betting against a company,” NYSE Group President Tom Farley told lawmakers in Washington Tuesday.

The heads of the NYSE and Nasdaq have appropriated the word “transparency” to support the effort to reduce the shorts’ effectiveness.  When the NYSE purports to champion “transparency” – the key to reducing fraud by the CEOs of the companies whose stocks they exchange – it is time for investors to grab their wallets and hold them tight.  The stock exchanges are very far from being champions of transparency when the question is what the CEOs of the listing companies should be required to disclose.  Sure enough, it turns out that the stock exchanges’ proposed anti-short “reform” is actually a means to try to reduce the reliability of the public disclosures made by the CEOs of firms on those stock exchanges.  A sophisticated stock fraudster wants the public to believe the firm is “transparent” because of its disclosures, but it is those very disclosures (when false) that turn that ‘transparency’ into an illusion designed to deceive the investor.  When shorts improve the reliability of the disclosures that the CEOs of firms listed on the stock exchanges make, they protect investors from fraud.  That makes honest “shorts” highly “American.”

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Those to Blame for the Grenfell Fire Victims Include Tony Blair

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

There are many people culpable for the mass loss of life in the Grenfell fire in London.  At this time, we know enough about the fire and its causes to be able to discuss these matters with sufficient confidence to draw preliminary conclusions.  As always, we should also keep in mind that we do not have all the facts so some of our conclusions must be tentative.

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BWU Makes Its Latest Lemon Award to the UK

By Bank Whistleblowers United
June 25, 2017

Bank Whistleblowers United (BWU) makes its non-coveted Lemon award to the United Kingdom (UK) for actions harming whistleblowers and the world.  BWU’s three principals are highly experienced financial experts with combined practical and academic experience of over 120 years.  We are each unemployable in finance because we warned internally at are places of work and then externally about grave misconduct by the most senior financial and regulatory leaders that would (and did) produce terrible losses.

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Barclays and Its Executives Are Charged With Conspiracy to Commit Fraud

NEP’s Bill Black appears on The Real News Network and says don’t expect much – sadly, the British Serious ‘Farce’ Office that brought about the charges may not have the wits to carry out the prosecution. You can view with transcript here.

Roll-Back of Financial Regulations Has Nothing to do with Complexity or Boosting the Economy

NEP’s Bill Black appears on the Real News Network and explains that the Republicans’ effort to eliminate Dodd-Frank Act financial regulations serves the interests of the big financial institutions and has nothing to do with rules’ complexity or impact on the economy. You can view here with a transcript.

 

People of Integrity Won’t Work for President Trump

By William K. Black
June 6, 2017     Bloomington, MN

Rupert Murdoch controls the Wall Street Journal and Fox News.  Even before he acquired the WSJ its editorial board was known for its members’ ultra-right wing fervor.  The acquisition intensified that fervor.  The editorial board’s fervor has infected the WSJ’s news pages.  That is the context essential to understanding the significance of its June 6, 2017 editorial eviscerating President Donald Trump.  They entitled their editorial “The Buck Stops Everywhere Else.”  Here is the most damning paragraph.   .

If this pattern continues, Mr. Trump may find himself running an Administration with no one but his family and the Breitbart staff. People of talent and integrity won’t work for a boss who undermines them in public without thinking about the consequences. And whatever happened to the buck stops here?

In addition to the obvious slam, consider several aspects of the content, tone, and timing of the editorial.  They published it on the anniversary of D-Day, a day of courage and personal responsibility.  Dwight D. Eisenhower, the Allied commander of the invasion and future president of the United States, took a large gamble on the weather clearing enough to allow the invasion to occur.  The editorial, appropriately, given tight word count limits, did not explain what so many adult Americans recall – the last sentence of Eisenhower’s statement to the public in the event the invasion failed.  He personally drafted the statement.

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Money and Banking—Part 18 (B): Overview of the Financial System: A World of Promises

Due to the size of this post, it  has been split into 2. You can find part A here.

Monetary instruments

Monetary instruments are the last type of marketable promissory notes. Post 15 and Post 16 are devoted to their analysis. One of the main characteristics of monetary instruments is that their term to maturity is instantaneous, that is, they can be returned to the issuer at the will of the bearer. In terms of cash, that is physical monetary instruments, the Financial Accounts of the United States make a difference between currency, Treasury currency, and coins. Coins are not included in the Accounts, currency refers to cash issued by the Federal Reserve (Federal Reserve notes), and Treasury currency refers to cash issued by the US Treasury (the Treasury no longer issues any currency but some of it still circulates). Unless stated otherwise, the term “currency” will be used to include paper-made monetary instruments issued by both the Federal Reserve and the Treasury. In 2015, the outstanding dollar amount of currency was $1.5 trillion and Figure 18.20 shows that 95 percent of it was held by the domestic non-federal sectors and the rest of the world. In 2015, about 40 percent of the US-dollar-denominated currency outstanding was held by the rest of the world, and about 55 percent was held by the domestic private sector. The ownership structure of Treasury currency outside the Federal Reserve is not provided by the Financial Accounts, but most of it must be held by the domestic private sector. The Federal Reserve is a significant holder of Treasury currency although the significance of its holding has shrink over time. In 1945, Federal Reserve’s holding of Treasury currency represented about 10 percent of outstanding currency, but, by 2015, it represented less than 5 percent of outstanding currency.

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Money and Banking—Part 18 (A): Overview of the Financial System: A World of Promises

Due to the size of this post, it was split in two. You can find Part B here.

The M&B series is back! The goal is to finish the first complete draft of the book by the time I need to teach my Money and Banking course. Over the coming months, the following topics will be covered.

  1. Overview of the financial system
  2. Federal Reserve System institutional analysis
  3. Interest rate and interest rate structure
  4. Pricing of securities
  5. Off balance sheet: Securitization
  6. Off balance sheet: Derivatives
  7. Monetary policy in action (issues surrounding interest-rate rules, transmission channels, etc.)
  8. International monetary arrangements and exchange rates
  9. Modeling (theory of the circuit, including the money supply in models, stock-flow coherency, portfolio constraints, capital gains, using models, etc.)

With these new sections and the seventeen other chapters of the book (which I have already rewritten in part to take into account feedbacks from my students), one should have a solid alternative preliminary text (let me know if I should cover more topics). The incomplete draft was well received by my students and has been downloaded over 8000 times as of May 2017.

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