Monthly Archives: February 2015

The HSBC Scandal: A Red Flag for U.S. Regulators?

Posted on February 18, 2015 by | 1 comment

NEP’s Bill Black appears on Knowledge@Wharton discussing the HSBC scandal with Jennifer Blouin. You can see the story and hear the podcast here.

 

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Get a TAN, Yanis: A Timely Alternative Financing Instrument for Greece

Posted on February 16, 2015 by | 44 comments

By Rob Parenteau

The recent election of an explicitly anti-austerity party in Greece has upset the prevailing policy consensus in the eurozone, and raised a number of issues that have remained ignored or suppressed in policy circles. Expansionary fiscal consolidations have proven largely elusive. The difficulty of achieving GDP growth while reaching primary fiscal surplus targets is very evident in Greece. Avoiding rapidly escalating government debt to GDP ratios has consequently proven very challenging. Even if the arithmetic of avoiding a debt trap can be made to work, the rise of opposition parties in the eurozone suggests there are indeed political limits to fiscal consolidation. The Ponzi like nature of requesting new loans in order to service prior debt obligations, especially while nominal incomes are falling, is a third issue that Syriza has raised, and it is one that informed their opening position of rejecting any extension of the current bailout program.

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The Study that Foreshadowed the Three Fraud Epidemics that Drove the Crisis

Posted on February 15, 2015 by | 3 comments

By William K. Black
Bloomington, MN: February 15, 2015

I will be writing a series of articles concerning the three mortgage fraud epidemics that hyper-inflated the bubble and drove the financial crisis prompted by four recent economic studies of mortgage fraud. My goal is to integrate the results of those studies with the work of criminologists, investigators, and data from other sources such as Clayton.

In economics and white-collar criminology, we teach our students the very useful concept of “revealed preferences.” We take what potential perpetrators say they would do and why they claim they took an action with cartons of salt. Their actions generally speak far louder and more candidly than do their words. I will show in this series how valuable revealed preferences are in analyzing the data and testing rival research hypotheses. (I will explain why I feel the recurrent failure to state these hypotheses expressly leads to serious error.)

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The BBC Dismisses a Real Greek Economist as a Sexy “Ideologue”

Posted on February 14, 2015 by | 6 comments

By William K. Black
Bloomington, MN: Valentine’s Day 2015

In its web version, the BBC “News” has you click on a tease titled “Yanis Varoufakis, charismatic ideologue” to access a story dated February 13, 2015 entitled “Profile: Yanis Varoufakis, Greek bailout foe.” Neither the tease nor the title make any sense. Varoufakis is the Greek finance minister. Except, of course, we’re reading this in the BBC, so the description actually reads “Greece’s left-wing Finance Minister Yanis Varoufakis.” Funny, the BBC never describes the head of the ECB as “the ultra-right-wing” economist Mario Draghi or Jeroen Dijsselloem, the Dutch Finance Minister and troika hit man as the “ultra-ultra-right-wing” non-economist.

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Bank Leaders Condemn Themselves

Posted on February 14, 2015 by | 3 comments

By William K. Black
Bloomington, MN: Valentine’s Day 2015

If you inhabit the reality-based universe you know that finance has become a parasite that is a leading threat to our economies and democracies. A series of financial regulators – each of them infamous for their slavish apologias for bankers and banking – now admit that our most elite banks and bankers have created corrupt cultures that have turned the world’s largest banks into the world’s largest criminal enterprises.

How have top bank leaders reacted to this corruption? There is a new report out that asked bank leaders that question.

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Implicit Assumptions and Biases about Liar’s Loans Lead Journalists into Error

Posted on February 13, 2015 by | 2 comments

By William K. Black
Bloomington, MN: February 13, 2015

The website “538” has one claim to fame – interpreting data.  In the mortgage fraud context it got this horribly wrong in a way that should be an object lesson to the dangers of implicit assumptions that implicitly exclude alternative theories of causation.  This typically happens because of an unrecognized bias.  Ben Casselman and Andrew Flowers provided the object lesson in their discussion of a new study (behind a pay wall) by Atif Mian and Amir Sufi entitled “Fraudulent Income Overstatement on Mortgage Applications during the Credit Expansion of 2002 to 2005”

“What they found: Mortgage lending surged in low-income, less creditworthy areas of the U.S. between 2002 and 2005. But systemic differences between incomes reported on mortgage applications and incomes reported to the IRS indicate that much of this “subprime” lending was reliant on borrowers fraudulently overstating their income.

Why it matters: Between 2002 and 2005, there was a tsunami of money for prospective U.S. homebuyers. This surge of mortgage credit was strongest in less creditworthy, low-income areas. But some economists have argued that incomes of homebuyers were increasing in these areas. After all, by looking at income as reported on mortgage applications, the areas with lower credit scores seem to have robust growth of homebuyers’ income. But new research from Sufi and Mian — the authors of “House of Debt” who have written for FiveThirtyEight — confirms that, no, economic improvement wasn’t behind these improving income numbers. It was fraud. Specifically, the fraud of homebuyers overstating income.”

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Return of the Coin?

Posted on February 13, 2015 by | 8 comments

By Joe Firestone

The last few weeks have seen at least two posts calling attention to the potential use of the platinum coin in America’s political economy. The first to appear was Rob Urie’s piece in Counterpunch provocatively titled: “The Trillion Dollar Catshit Coin” And the second was Mike Sandler’s post in The Huffington Post called “Greece and the U.S. Senate: Economics for the 99%.

Let’s begin looking at these with Sandler’s effort. He reports on two challenges to austerity. The first is from Syriza’s victory in Greece and its promise to Greek voters that it will end austerity. The second:

The austerity mindset faces a new foe in the U.S. Senate as well. The re-shuffle of the last U.S. election that put austerity-minded Republicans in power has ironically resulted in a new anti-austerity economist being hired by Senator Bernie Sanders (I-VT) in the Senate Budget Committee — Professor Stephanie Kelton of the University of Missouri-Kansas City. Professor Kelton is a proponent of Modern Monetary Theory (MMT), a very pro-stimulus economic approach. Her hiring represents the biggest step forward for MMT, since the PR coup of the Trillion Dollar Platinum Coin in 2013. At that time, Kelton reportedly created the #mintthecoin hashtag that was featured in columns by Paul Krugman and others.

Sanders’ hiring of Kelton is a break from the more conciliatory “balanced budgeting” approach of some Democrats, such as former treasury secretaries with ties to Wall Street and fiscally-conservative “deficit hawks.” Kelton and her MMT colleagues go beyond the traditional Keynesian stimulus of short-term deficit spending. They seek to unleash the power of monetary policy to circumvent the scarcity mindset imposed on government action, perhaps even bringing the Trillion Dollar Coin back into the discussion.

Of course, Sandler means to say fiscal policy in the above, since MMT economics greatly favors reliance on fiscal, rather than monetary policy, in spite of the “monetary” in its name. But apart from that, he projects that we may see the platinum coin come back into prominence soon. Continue reading →

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Bill Black appears on Background Briefing

Posted on February 12, 2015 by | Comments Off on Bill Black appears on Background Briefing

NEP’s Bill Black appears on Ian Masters’ Background Briefing discussing HSBC and the tax dodging it facilitated for its customers. You can listen here.

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The City of London is so Criminogenic That It Boggles Even Its Banking Apologists

Posted on February 12, 2015 by | 2 comments

By William K. Black
Bloomington, MN: February 11, 2015

HSBC’s most recent scandal is the perfect holiday gift. Whatever genre of entertainment one favors – from blood diamonds to drug cartels to rollicking royals to sport stars HSBC was happy to aid the wealthiest stars of your genre to illegally evade their taxes. Taxes were once termed the price we paid for civilization, but they now represent the price the wealthy brag to each other about refusing to pay as they pillage civilization. Because the City of London “won” the “regulatory race to the bottom” it is the worst “vector” for the epidemic of sleaze led by our most elite bankers. Oh, sorry, I let reality intrude in that last sentence.

The “respectable” government people in the UK and the U.S. (and Ireland) insist that we are experiencing the first virgin crisis – consisting of hundreds of thousands of fraudulent transactions by bankers – in which not a single CEO of the largest banks knew that his bank was a massive criminal enterprise. The long-running (anti) morality play with an extended run in each of these three nations claims that we are experiencing the first “Virgin Crisis” conceived without sin in these bank C-Suites. In every case, the bank CEOs – paid like Croesus because they are financial geniuses and managerial wizards – has been bamboozled by the tiny folks in the banks’ “org charts.” Such a betrayal of the trust that the elite bank CEOs reposed in these unworthy junior officers and employees! The pain of the elite bank CEOs is palpable – having their reputation besmirched by their ungrateful and immoral lesser. We’ll put aside who it is that crafts the perverse incentives that created the City of London’s (and Wall Street’s) corrupt financial cultures for the same reason that the CEOs’ apologists put aside that unsettling question.

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Bank Lobbyists Still Fear Progressives and the Public

Posted on February 11, 2015 by | 2 comments

By William K. Black
Bloomington, MN: February 11, 2015

Don’t get cocky, but also don’t give up. Bank lobbyists are still whining about opposition from progressives to the lobbyists’ agenda to (again) gut financial regulation. The lobbyists don’t fear the Obama administration, they fear progressives and the public.

The story comes from one of the reliable voices of the plutocracy – Bloomberg – in a February 11, 2015 article entitled “Banks May Have Overplayed Their Hand Fighting Wall Street Regulation.”

The financial industry is finding that winning in Washington comes at a cost.

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