Yearly Archives: 2014

The EU Austerians Attack Each Other

Posted on October 14, 2014 by | 7 comments

By William K. Black

As things go from bad to worse in the eurozone the putative adults have begun to fight openly in front of the kids.  The putative adults, of course, have refused to act like adults for six years and instead have lived in a fantasy world in which austerity – bleeding the patient – is the optimal response to a recession.  As many of us have been warning for six years, this is a great way to create gratuitous recessions and even the Great Depression levels of unemployment in three nations of the periphery with 100 million citizens.

Italy has been forced by German demands for austerity into a third recession in six years, with France likely to experience the same fate.  Even Germany has stagnated and could fall into recession.  Instead of the four horsemen of the apocalypse, the three horses that make up a troika consist of the European Central Bank (ECB), the International Monetary Fund (IMF), and the European Commission (EC).  The troika combined to force the entire eurozone to inflict austerity in response to the Great Recession.

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Hold Your Wallet When the Swedish Central Bank Prize Rewards “Clever”

Posted on October 13, 2014 by | 2 comments

By William K. Black

The Swedish Central Bank’s (the “Bank”) prize in economics has gone to Jean Tirole.  It is always good to test such an award by looking at the writings of the recipient in an area in which the reader has particular expertise.  In my case, that would include the Savings and Loan debacle, financial regulation, and control fraud.  Tirole’s book: The Theory of Corporate Finance was published on January 1, 2006 during the heart of the three raging epidemics of accounting control fraud that were hyper-inflating the world’s largest financial bubble and about to create the financial crisis and the Great Recession.

As I have long emphasized and will be explaining at greater length in a book about the failures of economics and economists as exemplified by far too many of the recipients of the Bank’s Prize, economics is the only discipline in which the understanding of the field’s subject of study has gone backwards.  In particular, the praxis recommended by economists has proven highly criminogenic and is the primary explanation for why we suffer recurrent, intensifying crises, the rise of crony capitalism that cripples democracy and ethics, and spiraling inequality and low growth in the regions that suffer the greatest predation by our parasitical financial centers.  Tirole wrote at the ideal time to judge his understanding of corporate finance as it was actively causing these catastrophes.

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What are the Motive Forces for Effective Climate Action?

Posted on October 13, 2014 by | 2 comments

By Michael Hoexter

If you might want or need something to happen very badly or urgently that was debatably in your power to influence or effect, the chief rational approach you might choose would be to attempt to understand what are the causal forces or conditions that lead that thing to happen.  The alternatives are forms of magical thinking or prayer to assumed-to-be more powerful, perhaps supernatural, beings.   As the domain of effective and timely action on climate is largely within the domain of human beings’ ability to choose and influence others’ choices and such action is considered by increasing numbers of people to be highly desirable, one would think that substantial groups of social scientists would be making their best efforts to figure out how to “make climate action happen”.   Even if you were not an intense partisan of a particular outcome, as the scenario above suggests, if you were just a scientist or seeker of knowledge of some type, you would also want to understand motive forces, so as to predict future outcomes and make your scientific knowledge of some use to human beings.  This is the study of dynamics, how things change over time.

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Beware of Policies and Legislation Based on the Generational Accounting Scam

Posted on October 11, 2014 by | 10 comments

The Peter G. Peterson Foundation (PGPF) and its allied army of associated deficit hawks want the Congressional Budget Office (CBO), the General Accountability Office (GAO), and the Office of Management and Budget (OMB) to do fiscal gap accounting and generational accounting on an annual basis and, upon request by Congress, to use these accounting methods to evaluate major proposed changes in fiscal legislation. Generational Accounting is an invalid long-range projection method that doesn’t take into account inflation, the projected value of the Government’s capability to issue fiat currency and reserves in the amounts needed to fulfill Congressional appropriations, and re-pay its debts, the projected non-Government assets corresponding to government liabilities, the likely economic impacts of Government spending, surpluses, and deficits, the impact of accumulating errors on projections, and the biases inherent in pessimistic AND contradictory assumptions. It is a green eye shade method that ignores both economic and political reality.

If you want America to end deficit terrorism and austerity, and to have the fiscal policy space it needs to begin to restore the American Dream, then you need to defeat proposed policies or legislation which puts building blocks in place to bias fiscal policy towards austerity and the economic decline it will surely produce for ourselves, our children, and for their children. Proposed policies and legislation of this kind must be defeated for the following seven reasons. Continue reading →

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We Now Know what Form of Bank Fraud at JPMorgan it Takes to Alarm President Obama

Posted on October 11, 2014 by | 3 comments

By William K. Black

President Obama called no emergency meeting when he learned that JPMorgan and 15 other of the world’s largest banks had rigged LIBOR for years – distorting the prices on over $300 trillion in transactions.  He called no emergency meeting when he learned that JPMorgan and over 20 other huge lenders fraudulently sold Fannie and Freddie hundreds of billions of dollars in toxic mortgages.  Same non-result when JPMorgan and a dozen huge banks rigged bids on the issuance of municipal debt to rip off hundreds of government entities.  Same non-result when the big banks filed hundreds of thousands of fraudulent affidavits in order to foreclose on homeowners illegally.  Same nothing when he learned that over 20 huge lenders made the Office of the Comptroller of the Currency’s (OCC) list as the “worst of the worst” lenders and that Attorney General Eric Holder refused to prosecute any of their senior bank officers who led the frauds.  Same nothing when he learned that our home mortgage lenders had created “an open invitation to fraud” through making millions of fraudulent liar’s loans.  Another big nothing when Obama learned that the same banks controlled by fraudulent officers had deliberately created a “Gresham’s” dynamic by blacklisting honest appraisers who refused to inflate appraisals.

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Paul Krugman Still Believes That “the debt” Can Be a Problem for the U.S.

Posted on October 10, 2014 by | 13 comments

The deficit is now down to under 3% of GDP, and in contemplating that fact, Paul Krugman asks why the deficit hawks aren’t celebrating the precipitous fall from nearly 10% of GDP a few years ago. He then explains that:

Far from celebrating the deficit’s decline, the usual suspects — fiscal-scold think tanks, inside-the-Beltway pundits — seem annoyed by the news. It’s a “false victory,” they declare. “Trillion dollar deficits are coming back,” they warn. And they’re furious with President Obama for saying that it’s time to get past “mindless austerity” and “manufactured crises.” He’s declaring mission accomplished, they say, when he should be making another push for entitlement reform.

All of which demonstrates a truth that has been apparent for a while, if you have been paying close attention: Deficit scolds actually love big budget deficits, and hate it when those deficits get smaller. Why? Because fears of a fiscal crisis — fears that they feed assiduously — are their best hope of getting what they really want: big cuts in social programs.

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Capital “Can’t be Gamed” – Except Whenever the Bank CEO Wants To

Posted on October 9, 2014 by | 1 comment

By William K. Black

On October 6, 2014, the Wall Street Journal, only three days ago, published an editorial claiming that regulatory capture was “inevitab[le]” and that we should give up on regulation and rely instead on “simple laws that can’t be gamed” such as an increased capital requirement for banks.  I wrote a two piece response to the editorial.  What I just discovered (though it bears an October 7, 2014 date on the WSJ website) is that one day after the editorial claimed that asset and liability values (the inputs that define “capital”) “can’t be gamed” they presented data indicating that corporations frequently game asset values and that private auditors frequently fail to follow former audit procedures to detect and prevent the overstatement of asset values.  The title of the article is “Audit Deficiencies Surge” and the first two sentences contain the key data.

“Auditors at the largest U.S. accounting firms failed to follow proper procedures in more than four in 10 audits, according to the latest inspections by the U.S. government’s audit watchdog. That was more than double the rate four years earlier.”

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Yes We Can Pay for Increasing Social Security Benefits

Posted on October 8, 2014 by | 15 comments

Some time ago, in the pages of USA Today, Duncan Black, better known to some as Atrios voiced the immediate need for increased Social Security benefits of 20% or more even if it means raising taxes on high incomes, or removing the payroll tax cap on salaries.

Black is right about the need for increased benefits; but legislating that increase doesn’t require increasing taxes. In fact, Congress should both increase benefits and remove the payroll tax entirely.

But how is that possible without greatly increasing “the national debt”? The answer to that one is easy. Don’t tax or borrow to pay for it. Just mint a single one oz. platinum coin at the beginning of each fiscal year with a face value large enough to cover expected the cost of SS payments. Doing it that way will both take care of retirement needs and also provide a huge shot in the arm for employment, since the increase in Social Security benefit payments and the ending of the payroll tax won’t be offset by tax increases elsewhere that will depress aggregate demand. Continue reading →

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EU Austerity Bites the Austerians

Posted on October 8, 2014 by | 8 comments

By William K. Black

You know the austerians are panicking when the temple devoted to the worship of austerity, the Wall Street Journal, runs a story with the subtitle:  “Eurozone’s Largest Economy Has Its Worries, but Isn’t on Brink of Collapse.”  We can all sleep well at night because while Germany has screwed up its economy and the eurozone economy with self-destructive austerity it “isn’t on brink of collapse.”

“August’s shocking 4% decline in German industrial production versus July doesn’t signal an economy falling off a cliff. But the outlook for Germany—and by extension for the eurozone—is far from bright.

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Germany’s second-quarter gross domestic product was disappointing, registering a contraction of 0.2% on the quarter. August’s data put in question the modest rebound many economists are expecting in the third quarter. Surveys of economic sentiment have been declining: Markit’s manufacturing purchasing managers index for September entered contraction territory, at 49.9. Weaker global demand and concerns about the tensions between Russia and Ukraine are to blame. If this unpleasant mix persists, then growth seems unlikely to pick up.”

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If this is “Regulatory Capture” May the Lord Smite Us with It – And May We Never Recover!

Posted on October 8, 2014 by | 4 comments

By William K. Black

In Fiddler on the Roof, Perchik and Teyve have this exchange:

Perchik: Money is the world’s curse.

Tevye: May the Lord smite me with it! And may I never recover!

I was reminded of this when reading the Wall Street Journal editorial claiming that “regulatory capture” was “inevitab[le]” and that we should therefore replace financial regulation with “simple rules” that “can’t be gamed.”

In my first installment I showed that the WSJ’s “simple rules” not only can be gamed – they are invariably gamed massively in the epidemics of accounting control fraud that cause our recurrent, intensifying financial crises.  This installment refutes the “inevitability” of “regulatory capture.”  As I promised to explain, I can personally attest that regulatory capture is not “inevitab[le]” even in circumstances that are ripe for capture.  Further, “regulatory capture” has no definition and economists use it and the term “rent-seeking” as sloppy swear words to describe regulatory actions that are the opposite of regulatory capture.  I conclude by showing that we know how to avoid harmful “regulatory capture,” but the ideologues that oppose effective regulation deliberately chose anti-regulatory leaders who create a self-fulfilling prophecy of regulatory failure.  The WSJ editors and neo-classical economists are the jockeys who insure that their horse loses – and then blame the horse.

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