naked capitalism Mon 2010-09-20 09:24 EDT

Theoclassical Law and Economics Makes the Law an Ass

William Black

...The Supreme Court's Citizens United decision allows businesses to make unlimited political contributions to judges and politicians. When judges are elected, the need for these contributions inherently turns judges into politicians. Sympathetic judges are corrupt businesses' most valuable allies. Corporations and their senior officials can commit civil or criminal wrongs with impunity if their case is assigned to a friendly judge...Yves noted that the Chamber of Commerce was leading the effort to elect CEO-friendly judges...The Chamber distributed a plan for a hostile takeover of university departments of economics and finance (and the courts and the media) proposed by Lewis Powell (the soon to be Supreme Court Justice). Extremely conservative ``law and economics'' proved to be central to this effort. The law and economics movement began as a non-ideological approach to explaining and aiding judicial decision-making. The scholars leading the movement had diverse views. The Olin Foundation transformed law and economics into an ultra ideological field dominated almost exclusively by passionate opponents of government ``interference'' in ``free enterprise.'' Olin specialized in creating well-funded positions in academia for scholars that had an ``Austrian'' approach to economics...Law and economics has, for over two decades, been dominated by theoclassical economic dogmas that have proved false...There are now tens of thousands of law and economics graduates that have taken a class in theoclassical law and economics. They were taught that theoclassical economic assertions (often falsified decades ago) were objective facts devoid of ideological content. They have been taught that economics has proven that regulation is unnecessary, hopeless, and harmful...

ass; economics make; Law; naked capitalism; Theoclassical Law.

THE PRAGMATIC CAPITALIST Wed 2010-04-07 18:22 EDT

THE ENRON BANKING SYSTEM

TPC

``Panics do not destroy capital -- they merely reveal the extent to which it has previously been destroyed by its betrayal in hopelessly unproductive works'' -- John Mills ...We should draw a distinct line in the sand between banks and diverse risk taking firms. There are always going to be Enron's in the economy, but why should we allow our entire banking sector to mirror Enron? Taking a 30,000 foot risk management view I say something must be done to ensure these banks can never do this again. Turn banks into true banks. Hedging and exotic business models are fine. Just don't commingle them under the same umbrella as a deposit taking ``bank''. With that, a few ideas come to mind: * Our banking system should be aligned with the goals of the nation to help ``grease'' the wheels of the economic growth engine of the United States. Banks should be more like utilities and less like hedge funds. Otherwise, banking becomes counter-productive and potentially destructive. * Banks should not be allowed to exact onerous fees on the public or enact a business model which is inherently dependent on driving their customers deeper and deeper into debt. This undermines the entire goal of productive economic growth. * ``Banks'' should be true lending institutions. Non-traditional banking operations and products such as CDS, ``off balance sheet'' finance, derivatives as collateral and such would be deemed illegal unless performed only by non banking/lending institutions (such as hedge funds) so as to insulate the public and true lending institutions from the risk taking, ``hedging'', and ``financial innovation'' of firms such as Lehman Brothers.

ENRON BANKING SYSTEM; pragmatic capitalists.

Tue 2010-01-12 23:32 EST

Dr. Edwin Vieira, Jr. on the Failure of the Public Sector, the Coming Military Crackdown and What Can Be Done to Stop It

...The foremost problem-because it is the source of, or contributes significantly to, almost every economic difficulty now plaguing this country-is the inherent and ineradicable instability of the present monetary and banking systems centered around the Federal Reserve System. The second problem derives from the first. It is the ever-accelerating development of a first-class para-militarized police-state apparatus centered around the United States Department of Homeland Security, with its tentacles reaching down into every police force throughout the States and localities. Fundamentally, this apparatus is not, and never was, designed to deal with international "terrorism". If that were its goal, its first task would be absolutely to secure the southern border of the United States, which it has never seriously attempted to do. Rather, it is being set up to deal with what the political-cum-financial Establishment anticipates (and I believe rightly so) will be massive social and political unrest bordering on chaos throughout America when the monetary and banking systems finally implode in the not-so-distant future-surely in hyperinflation, and probably in hyperinflation coupled with a gut-wrenching depression. Of these two problems, the second is actually the more dangerous...

Coming Military Crackdown; Dr. Edwin Vieira; failure; Jr; public sector; stop.

naked capitalism Mon 2009-12-28 17:16 EST

Guest Post: Princeton Economist and Computer Scientists Show that Derivatives Are Inherently Vulnerable to Fraud

Washington's Blog

...the main default risk model for credit default swaps -- the ``Gaussian copula function'' -- was inherently flawed. Now, Princeton University economists and computer scientists have demonstrated that financial derivatives are also inherently vulnerable to fraudulent pricing. PhysOrg summarizes Princeton's findings: ...sellers of these investments could purposefully include pieces of bad risk that no buyer could detect even with the most powerful computers... the problem arises from asymmetric information between buyers and sellers, and goes against conventional wisdom in economic theory, which holds that derivatives reduce the negative effects of such unequal information.

Computer Scientists Show; derivative; fraud; Guest Post; inherently vulnerable; naked capitalism; Princeton economists.

Credit Writedowns Wed 2009-10-14 12:12 EDT

Currencies pegged to the dollar under pressure to drop peg

...as the dollar continues to weaken, those countries with pegs will be under pressure to drop their peg or to revalue their pegs higher. The Bloomberg video linked below explains. The dichotomy whereby the adjustment process is done only through free-floating currencies is inherently unstable -- and invites a nationalistic response. A busted peg in any major U.S. trading partner's currency is likely to have a very negative psychological impact on currency markets and severe knock-on effects... [dollar losing reserve status]

credit writedowns; currency pegs; Dollar; drop peg; pressures.

zero hedge Sat 2009-10-10 14:13 EDT

Albert Edwards On The Upcoming Economic "Abyss"

As always, Albert Edwards provides a solid dose of economic observations based on facts, not hope...unless you truly believe that the stock market is its own isolated bubble, which many do, at some point cash from assets will have to support equity and debt valuations. And once the government cash funding vacuum pops, the market-economy divergence will also collapse. At that point, every dollar used by the government via stimulus and Federal Reserve pumps will have an equal and opposite effect on stocks, thereby throwing America not just into a debt funding crisis, but a complete economic and capital market tailspin. Alas, it appears impossible to prevent this, as the administration and the Federal Reserve Chairman are dead set on executing their inherently flawed experiment...and the American middle class.

abyss; Albert Edwards; upcoming economic; Zero Hedge.

Tue 2009-09-22 08:17 EDT

Guest Post: Sarkozy, Stiglitz & capitalism's inherent contradictions

Swedish Lex

The French Commission on the Measurement of Economic Performance and Social Progress presented its final Report written by Stiglitz and other leading economists at an event at la Sorbonne earlier today. The contents of Report is already being discussed widely but at least as relevant are the politics surrounding the Commission's Report and how France intends to use it to spearhead economic reform at home and abroad...at least in France, the financial crisis is alive and will be used to promote reform...Governments need to modify their behavior, first by changing how they account for the situation in society by including questions about the overriding purposes of society and public policy; ``our certitudes have evaporated, everything has to be put into question and re-invented''. Current methodologies fail to take externalities into account with the risk of booking developments as progress while, in reality, the opposite is true. Growth has in some regards destroyed more than it has achieved.

capitalism's inherent contradictions; Guest Post; Sarkozy; Stiglitz.

naked capitalism Sun 2009-09-20 09:48 EDT

Guest Post: ``Assessing the Recent Performance of the Fed''

Richard Alford, former economist at the New York Fed

...the current Fed: 1) actively promoted the asset bubbles which precipitated the most costly business downturn since the Great depression; 2) passively sat by ignoring its regulatory and supervisory responsibilities allowing the growth of imbalances that led to the worst business downturn since the Great depression...the economic and financial imbalances that built up between 2000 and 2007 will generate the opportunity costs in terms of lost output and idle and misallocated resources that will exceed the costs inherent in the economic and financial imbalances reflected in the most expensive anti-inflation fight ever fought by the Fed (1980-1983). The US financial system remains on life support. Furthermore, the Fed has played a part in allocating credit and in engineering redistributions of wealth on a scale that is likely to on the same scale as the redistribution of wealth from the household sector to government during the inflation ridden 1970s. The independence of the Fed has been compromised. Many in the Congress want to audit the Fed and limit its ability to make loans in future emergencies. The Fed is seen by many as an agency of the Treasury.

assessment; Fed; Guest Post; naked capitalism; recent perform.

Thu 2009-09-17 09:31 EDT

Why capitalism fails - The Boston Globe

Stephen Mihm

Mainstream economics rediscovers Hyman Minsky; ``Instability,'' he wrote, ``is an inherent and inescapable flaw of capitalism.''...Minsky drew his own, far darker, lessons from Keynes's landmark writings, which dealt not only with the problem of unemployment, but with money and banking...Minsky argued that Keynes's collective work amounted to a powerful argument that capitalism was by its very nature unstable and prone to collapse. Far from trending toward some magical state of equilibrium, capitalism would inevitably do the opposite. It would lurch over a cliff...Minsky spent the last years of his life, in the early 1990s, warning of the dangers of securitization and other forms of financial innovation, but few economists listened. Nor did they pay attention to consumers' and companies' growing dependence on debt, and the growing use of leverage within the financial system... Minsky...argued for a ``bubble-up'' approach, sending money to the poor and unskilled first. The government - or what he liked to call ``Big Government'' - should become the ``employer of last resort,'' he said, offering a job to anyone who wanted one at a set minimum wage. It would be paid to workers who would supply child care, clean streets, and provide services that would give taxpayers a visible return on their dollars. In being available to everyone, it would be even more ambitious than the New Deal, sharply reducing the welfare rolls by guaranteeing a job for anyone who was able to work. Such a program would not only help the poor and unskilled, he believed, but would put a floor beneath everyone else's wages too, preventing salaries of more skilled workers from falling too precipitously, and sending benefits up the socioeconomic ladder.

Boston Globe; Capitalism Failed.

naked capitalism Mon 2009-09-14 14:51 EDT

Guest Post: Sarkozy, Stiglitz & capitalism's inherent contradictions

Swedish Lex, an expert and advisor on EU regulatory and political affairs

The French Commission on the Measurement of Economic Performance and Social Progress presented its final Report written by Stiglitz and other leading economists at an event at la Sorbonne earlier today. The contents of Report is already being discussed widely but at least as relevant are the politics surrounding the Commission's Report and how France intends to use it to spearhead economic reform at home and abroad. This post provides a few comments on Sarkozy's speech.

capitalism's inherent contradictions; Guest Post; naked capitalism; Sarkozy; Stiglitz.

Calculated Risk Mon 2009-09-14 12:05 EDT

A Moment with Minsky

CalculatedRisk

Stephen Mihm at the Boston Globe looks at Hyman Minsky...``Instability,'' Minsky wrote, ``is an inherent and inescapable flaw of capitalism.''

Calculated Risk; Minsky; Moment.

Steve Keen's Debtwatch Sun 2009-08-30 20:48 EDT

Debtwatch No. 38: The GFC--Pothole or Mountain?

Cassander

``The Marxian view is that capitalistic economies are inherently unstable and that excessive accumulation of capital will lead to increasingly severe economic crises. Growth theory, which has proved to be empirically successful, says this is not true.'' wrote Economics Nobel Prize winner Edward C. Prescott. Prescott also claimed ``the Great Depression was a conscious choice by American workers to enjoy more leisure, in response to unspecified changes in the labour market'' Apparently debt played no role. The capitalistic economy is stable, and absent some change in technology or the rules of the economic game, the [...]

38; Debtwatch; GFC; Mountain; Potholes; Steve Keen's Debtwatch.

Thu 2009-07-30 00:00 EDT

Will The Dollar Standard Collapse?

By John Carney; Sahm Adrangi opines ``Abandoning the gold standard has gradually resulted in a very overvalued US dollar, and that the dollar is headed for disaster. The dollar standard is inherently flawed and increasingly unstable. Its collapse will be the most important economic event of the 21st century.

Dollar Standard Collapse.

Thu 2009-07-23 00:00 EDT

The Texas Observer > Commentary by James K. Galbraith -

The Texas Observer > Commentary by James K. Galbraith - Causes of the Crisis; ``The idea that capitalism...is inherently self-stabilizing'', former Texas Senator Phil Gramm, and ``abandonment of state responsibility for financial regulation''

commentary; James K. Galbraith; Texas Observer.

Tue 2009-06-16 00:00 EDT

naked capitalism: Guest Post: The Fake Recovery

``he underlying systemic issues in the financial sector are being papered over through various mechanisms designed to surreptitiously recapitalize banks while monetary and fiscal stimulus induces a rebound before many banks' inherent insolvency becomes a problem''

Fake Recovery; Guest Post; naked capitalism.

Tue 2009-04-21 00:00 EDT

On Speculation, Wall Street and Hedge Funds - The Market Ticker

``securitization is inherently a process of wealth-stripping'' ``the claim of "wealth creation" in any of this "financial product innovation" is a bald-faced lie.''

Hedge funds; Market Ticker; Speculators; Wall Street.