Money and Banking Part 14: Financial Crises

By Eric Tymoigne

While visiting the London School of Economics at the end of 2008, the Queen of England wondered “why did nobody notice it?” In doing so, she echoed a narrative that had been promoted among some prominent economists: the Great Recession (“it”) was an accident, a random extreme event and no one so it coming. This narrative is false. Quite of few economists saw it coming and it was not an accident. A previous post showed how different theoretical framework about financial crises lead to different regulatory responses. This post studies more carefully the mechanics of financial crises and how an economy gets there.

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Mankiw Morality in a Mash Up with Mankiw Myths

By William K. Black
May 8, 2016     Kansas City, MO

N. Gregory Mankiw writes leading textbooks in economics that present neoliberal economic nostrums as economic “principles.” Mankiw wrote a column in the New York Times entitled “The Economy Is Rigged, and Other Presidential Campaign Myths.” The title reflects the central nature of his attack on Bernie Sanders explaining how the economy is rigged in favor of elite bank fraudsters.  This first column in a series responds to Mankiw’s myths about the rigged financial system.  The next column deals with Mankiw’s myths about the trade deals.

Mankiw misfires immediately because he does not even attempt to refute Bernie’s explanations of how finance is rigged.  Instead, Mankiw conflates income inequality and the rigging of finance.

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Over-Arching Perspective


I’m attracted to “big picture” vistas that put the day’s momentary developments into what at least feels like a meaningful perspective. It helps me to imagine things are more manageable than they otherwise seem to be. In reading my daily news (currently The Washington Post), I’m always on the lookout for at least two articles that fit together somehow to create a glimpse of this over-arching view. Today (Friday, 6 May) I got what feels like a pretty good peek.

First is an article about the EPA’s twenty-five year struggle to define and implement rules and regulations about lead in America’s water supply. Basically, the efforts have focused on requiring municipalities to test their water for lead on a regular basis―and then implement some kind of remediation if the lead-levels test too high. The problem lies in the complex relationship between the testing and the remediation: Testing must occur at the tap, not at the supply, because lead contamination occurs in the old, lead pipe-connections which the water, pure as it may be when it starts out, must pass through to get to the tap. The corrosiveness of the water, which is controlled by many factors and chemicals, determines how much lead is picked up along its journey through the lead-infested pipes. If the tap water tests too high, municipalities must implement a complex calculation of how to reduce the water’s corrosiveness.

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Web Site Devoted to Helping Customers Cheat Cheated its Customers

By William K. Black
May 4, 2016     Bloomington, MN

To the shock of no one, with the possible exception of men who would use such a site, it is alleged that the website devoted to helping their customers cheat their loved ones cheated their customers.  (Yes, another example of the myriad forms and layers of “spontaneous order” that von Hayek does not want you, or any economist, to think about.)  This was reported in Corporate Counsel.  Plaintiffs are trying to bring a class action fraud lawsuit against the firm Ashley Madison (“Life is short.  Have an affair”).  The firm’s client list was made public by a hacker who expressed distress at the firm’s business plan of encouraging affairs.

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Free Markets Mean Zero Economic Profit – or a 99% Profit Markup

By William K. Black
May 3, 2016     Bloomington, MN

Open up a conventional economics text and you will be taught that high among the glories of “free markets” is the “fact” that they lead to firms earning “zero economic profits.”  Economic profits are not the same as accounting profits.  An economic profit occurs when a firm receives greater profits than the minimum required to be able to raise capital in their industry.  A firm that receives a profit greater than that minimum requirement is receiving monopoly “rents” due to its market power.  Conventional economists used to believe that was a bad thing, but many conventional economists from the right are now openly hostile to antitrust concerns.

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Bloomberg Tells Michigan Grads They Must Defeat Bernie’s Plan to Jail Wall Street Felons

By  William K. Black
May 2, 2016      Bloomington, MN

Michael Bloomberg has just published, in Bloomberg, what he describes as “an adaptation of an address to the University of Michigan’s class of 2016.”  Having graduated twice from Michigan, as did our eldest, I was intrigued.  Bloomberg’s title was “Here’s Your Degree.  Now Go Defeat Demagogues.”  What Bloomberg means is that he is frightened that so many young people supported the “Occupy Wall Street” movement and support Bernie Sanders.  I’ve written before about Bloomberg, a Wall Street billionaire, and the myths he tries to spread about Bernie.  Wall Street elites fear Bernie.  They know he won’t take their money, he will end the systemically dangerous banks, and he will imprison their leading felons.  Bloomberg’s hate for, and fear of, Bernie is perfectly rational.  Why he thinks that Michigan students will take his advice and learn to love Wall Street’s felons is a lot less clear.

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False Choice or Real Possibilities


The essential ploy in politics is to give people a false choice. For dinner tonight, you can have fried potatoes—which are what I am serving—or you can have watered-down potato gruel, which is what my opponent is serving. Never mind that, if we take time to look, the larder is actually stocked with tomatoes, corn, zucchini, string-beans, hams and pork bellies.

The political false choice is usually quite subtle, and invariably involves whether you want to be taxed or not. The example I continuously stumble upon is Barak Obama’s 2015 State-of-the-Union proposal for universal child-care in America. However eloquently he may have framed it, the choice President Obama eventually gave was this: pre-school child-care for every American family paid for by the federal government—coupled with a new tax on cigarettes—OR hit-and-miss pre-school child-care paid for by private welfare, struggling individual families, and desperate single moms. Never mind looking in the larder to see if there are unemployed resources in America which—without raising additional taxes—could not only provide the child-care services, but could be employed to do so, thereby contributing not only to the gross domestic product and aggregate demand for Main Street businesses, but to the well-being and success of our nation’s school-children. But instead of looking in the larder to see what was possible, we were given Obama’s false choice.

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The German Right is Stunned that Plowing Wickedness Has Reaped Iniquity

By William K. Black
May 1, 2016     Bloomington, MN

Republican Party leaders are shocked that their three decades of pursuing the racist “Southern strategy,” California Governor Pete Wilson’s desperate attacks on Latinos, myriad assaults on women’s rights, and repeatedly sponsoring gay bashing propositions designed to energize the (bigoted) base have created a base that champions Donald Trump’s serial hatred.  Key leaders of the hard right in Germany are shocked by the same dynamic.  The prophet Hosea has two verses that warned of this dynamic millennia ago.

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Progressives Don’t Let Friends Vote Neocon

By L. Randall Wray

The drumbeat is quickening as Hillary’s surrogates insist that Bernie’s supporters fall in line. Bernie’s chances are said to be hopeless. Continuing to run only plays into the hands of truly despicable Republicans.

And forget about trying to pressure the Democratic Party’s establishment to let Bernie play a role in formulating the convention’s platform. That also would just play into the hands of the Republicans.

Time to unite behind Hillary, and let her move further to the right. No more talk of revolution, of trillions of dollars of new spending, of significant increases to the minimum wage. Let’s talk about Hillary’s issues: regime change abroad, downsizing dreams at home, and protecting Wall Street from the pitchforks.

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Bill Black on The Vinny Eastwood Show

NEP/BWU’s Bill Black appears on the Vinny Eastwood show out of New Zealand. Topics of discussion are Financial Fraud, and the Panama Papers.