Yearly Archives: 2014

Spain Rains on Rehn’s Austerity Victory Parade: Unemployment Rises to 26%

Posted on January 25, 2014 by | 15 comments

By William K. Black

Two articles that should be read by anyone interested in the global financial crisis have just been published.  They address Spain.  Spain tends to get far less coverage in the U.S. than Ireland and Greece, but it is a far larger country and economy.  Its real estate bubble, relative to GDP, was the second worst among economically developed nations.  Spain is so large and its unemployment is so severe that “Almost a quarter of all the unemployed in the 28-country European Union live in Spain….”  Spain’s housing bubble was funded by an out of control banking sector and the bad loans are causing increasing damage to the banks.  “[B]anks’ assets continue to deteriorate with an increase in the number of loans not being paid back.”

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Who Needs a Balanced Trade Policy?

Posted on January 24, 2014 by | 43 comments

By Joe Firestone

It’s easy to recognize that after many years of trade deficits accompanying implementation of trade agreements beginning with NAFTA the US needs to change what it’s doing. Many, including Robert Borosage of the Campaign for the American Future (CAF), advocate for balanced trade and they contrast that with the so-called “free trade” policies we have now. The case for balance trade policy is summarized by Borosage this way during his discussion of the policies favored by the New Populism:

Our global trade policies have been defined by and for multinational banks and companies. They have shipped good jobs abroad and driven wages down at home, while racking up unprecedented and unsustainable trade deficits. Those imbalances, as the International Monetary Fund and former Federal Reserve Chair Ben Bernanke have noted, contributed directly to blowing up the global economy.

The new populists demand balanced trade policies. . . .

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Dimon Does Davos

Posted on January 24, 2014 by | 3 comments

By William K. Black

If, as an effort at satire, I had written the story that the New York Times’ “Deal Book” has just written about what JPMorgan’s board of directors has just actually done, people would have dismissed my piece as absurdly over the top.  The board has decided to increase Jamie Dimon’s compensation substantially.  The reason the board gives (in leaks to Deal Book) must have resonated with Deal Book because it is the theme song that Deal Book has been singing for months, another “‘somebody done Dimon wrong’ song.”

Recall that the title of Andrew Ross Sorkin’s country-western lament was that Dimon was the victim of “bloodlust” because Dennis Kelleher, the head of the NGO “Better Markets,” believed that Dimon should be fired for poor performance.

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An AWESOME MMT Video

Posted on January 24, 2014 by | 18 comments

A big MMT thanks to Donna D’Souza aka Trixie aka @HaikuCharlatan. She has done an awesome job of animating J.D. Alt’s wonderful new ebook Diagrams & Dollars: Modern Money Illustrated. For your viewing enjoyment, Donna’s video is below.

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Professor Krugman’s Nervous Tic?

Posted on January 22, 2014 by | 20 comments

By Joe Firestone

Paul Krugman’s recent post makes some good points about the myth of the undeserving poor. But does he have a nervous tic? When criticizing conservative economic views, doesn’t he always seem to genuflect slightly to conservative opinion in order to appear “reasonable”? In this post he says:

“I’ve noted before that conservatives seem fixated on the notion that poverty is basically the result of character problems among the poor. This may once have had a grain of truth to it, but for the past three decades and more the main obstacle facing the poor has been the lack of jobs paying decent wages. But the myth of the undeserving poor persists, and so does a counterpart myth, that of the deserving rich.”

What “grain of truth” ever existed in this story? Where is the empirical evidence that the poor were ever more “lazy” than the rich or had other “character defects” (Not K’s words) that the rich don’t have in abundance, as well? I don’t think there is any. What the conservatives believe is pure BS. Some people are certainly “lazier” than others. But there’s no evidence that this aspect of character is class-based. It’s just prejudice, myth, and conservative fairy tales, which they embrace in place of authentic religion, run rampant.

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Bank Lending and Bank Reserves

Posted on January 22, 2014 by | 41 comments

By Dan Kervick

Frances Coppola has a very nice piece in Forbes that takes on some of the continuing confusion over commercial bank reserves, central bank payments of interest on reserves and the relationship of both to commercial bank lending. She concludes with a ringing rejection of the frequently voiced claims that the Fed’s policy of paying interest on reserves inhibits bank lending, and that high excess reserve levels are an indicator of sluggish bank lending or bank hoarding:

The volume of excess reserves in the system is what it is, and banks cannot reduce it by lending. They could reduce excess reserves by converting them to physical cash, but that would simply exchange one safe asset (reserves) for another (cash). It would make no difference whatsoever to their ability to lend. Only the Fed can reduce the amount of base money (cash + reserves) in circulation. While it continues to buy assets from private sector investors, excess reserves will continue to increase and the gap between loans and deposits will continue to widen.

Banks cannot and do not “lend out” reserves – or deposits, for that matter. And excess reserves cannot and do not “crowd out” lending. We are not “paying banks not to lend”. Positive interest on excess reserves exists because the banking system is forced to hold those reserves and pay the insurance fee for the associated deposits. It seems only reasonable that it should be paid to do so.

I wholeheartedly agree with the bottom line moral Coppola draws from the operational mechanics of bank lending, but I do think some additional clarity can be had on the question of whether or not commercial banks lend their reserves. And I also have some reservations about the justification Coppola cites for the policy of paying interest on reserves in the first place.

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Guaranteed Income? How About Guaranteed Job?

Posted on January 22, 2014 by | 5 comments

NEP’s Pavlina Tcherneva appeared on David Packman’s show yesterday (1/21/2014) discussing job guarantee programs. You can view the video below.

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Let’s End Politico and Deal Book’s “Competition in Sycophancy”

Posted on January 22, 2014 by | 2 comments

By William K. Black

Politico has joined Deal Book in a “competition in sycophancy.”  The contestants are competing to see which can author the most extreme version of a fantasy meme in which heroic Wall Street “banks” are oppressed by “Washington.”  I had not believed that any “serious” journalist could compete with Andrew Ross Sorkin’s Deal Book in pounding this meme.  Ben White, Politico’s economics reporter, has become my dark horse favorite in the race to the bottom of the “serious” business press with his whitewash entitled “How Washington beat Wall Street.”

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The S&L Regulatory Conspiracy Against Italian-Americans

Posted on January 21, 2014 by | 2 comments

By William K. Black

In my recent column I tried to convey a bit of courage, competence, and craziness that Jim Cirona displayed and had to deal with as a top regional regulator during the savings and loan crisis.

I failed, however, to discuss an episode that epitomizes all these elements.  The incident also eventually led to Cirona hiring me as the SVP and General Counsel of the Federal Home Loan Bank of San Francisco (FHLBSF).  I will draw heavily on Bartlett Naylor’s “The Legend of Wild Bill and Black Bart” in recalling the tale.  

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The TPP: A Dangerous Proposal Whose Time Has Gone

Posted on January 21, 2014 by | 12 comments

By Joe Firestone

A recent, very good post at Naked Capitalism by Clive, suggests:

. . . Dear readers, you may think that writing to your elected representative, commenting negatively on articles you read in the mainstream media about the TPP and generally kicking up a bit of a fuss, making some noise, is a waste of effort. That is not so. The world does watch what goes on in the US. If popular sentiment is against something, the US government has a much harder job of convincing foreigners that it’s just them being awkward and reactionary and not getting the big, progressive, reform-minded, modernising picture.

I agree that this is a good proposal for one way the American public could register its objections to the Trans-Pacific Partnership (TPP) with foreign leaders. But, I think that such letters ought also to point out that even if the TPP were railroaded successfully in the next few months, then it is unlikely to stick. After all, it is only a Treaty. Wouldn’t an electoral victory here by a movement dedicated to overturning corporate control of the political system, result in withdrawal from the TPP before any concrete legislation likely to conflict with it was passed by Congress?

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