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openDemocracy, 22 November 2013.

Frankenstein's Bankers

Alas! I had turned loose into the world a depraved wretch, whose delight was in carnage and misery.
(Mary Shelley, Frankenstein)

Like most human creations, money and banking can, when misunderstood, turn against their creator, taking on a destructive, out-of-control life of their own. Thus, after the collapse of the US banking system in 1929 and the following international economic depression of the 1930s, economists and politicians of the era came to understand the inherently volatile nature of money and banking, and they implemented strong measures aimed at taming and harnessing the financial sector in the service of the common good. However, over time this knowledge faded from memory, and economics, though aspiring to the status of science, actually regressed; as a senior economic analyst at the International Monetary Fund (IMF) put it recently, “for many decades in the interim, banks have almost been completely off the radar screen of macroeconomics. So we're starting again at a point that's almost pre-World War I.”[1] As a result, from the 1960s the national and international regulation that had helped maintain a relatively stable banking system was dismantled, while new financial developments and innovations received minimal attention from outside the financial markets and, despite warning signs, elicited little regulatory response – culminating in the immense financial crash of 2007-8.[2]

Possibly the most striking revelation to emerge from the financial crisis is how detached from reality mainstream academic economics had become. Most astonishingly, it omitted any serious study of money and banking.[3] The IMF's chief economist admitted, “We assumed we could ignore the details of the financial sector”[4]; the Governor of the Bank of England noted, “money, credit and banking play no meaningful role” in standard economic models[5]; and a professor of finance acknowledged that economists “simply didn't believe the banks were important.”[6] The reason for this was that in contrast to economists of the 1930s to 50s, later economists reverted to very simplistic, and fundamentally misleading, ideas about money and banking.

Current mainstream economics regards the state, or central banks, as controlling the supply of money in the economy and views commercial banks as functioning essentially as intermediaries between savers and borrowers. In fact, in the prevalent system of what is known as 'fractional reserve banking', about 97% of money is created by private commercial banks. This act of money creation takes the form of banks' extension of loans to borrowers, whereby a bank simply adds the amount of a loan to the borrower's account, held on computer (or, in earlier decades, in written ledgers). Thus, banks are fundamentally money creators rather than intermediaries. Savings ultimately derive from loans, not the other way round; in other words, debt is necessary for 97% of our money supply. Furthermore, this process of credit-creation is constrained only by banks' judgements of the likelihood of repayment of loans, and not by the monetary policies adopted by the state or central banks.[7]

The implications of these, unbelievably largely forgotten, fundamental facts are huge, encapsulated in the statement of one of the few prominent figures who are beginning to remember, the former chairman of the UK Financial Services Authority (FSA), Lord Adair Turner: “The financial crisis of 2007/08 occurred because we failed to constrain the private financial system's creation of private credit and money.”[8] The central problem is that this system of money and banking is inherently economically unstable. Banks have an incentive to create as much money as they can, due to the interest they earn on the credit they issue. Ironically, it is often more immediately profitable for banks to lend to non-productive sectors, such as for mortgages and to other parts of the financial sector, than to the productive economy. This generates a mirage of prosperity, encouraging further demand for, and issuance of, credit, in what becomes an unsustainable, credit-induced bubble.[9] As the chief economics commentator at the Financial Times put it, “the essence of the contemporary monetary system is the creation of money, out of nothing, by private banks' often foolish lending.”[10] The bubble will inevitably burst, or at least deflate, creating economic and social fallout, particularly if banks themselves collapse in the process; as Turner says, “Banks which can create credit and money to finance asset price booms are thus inherently dangerous institutions.”[11]

The costs of this system to society are immense. Most obviously, and absurdly, it means that since nearly all money is actually debt, we are having to pay vast sums, in interest, to private banks for creating money out of nothing, simply so we can have enough money in circulation for a functioning economy.[12]  Secondly, since we are so utterly dependent on banks for 'holding' our money and enabling us to make and receive payments, they enjoy a further huge hidden public subsidy for being too important to fail, a subsidy that becomes painfully apparent when they have to be bailed out by the state.[13] As the Governor of the Bank of England put it, for the banks it is “a case of heads I win, tails you – the taxpayer – lose.”[14] Further ways in which the financial sector is a drain on society include its tendency to raise house prices far ahead of wages, due to the high proportion of credit that it extends for mortgages rather than for socially beneficial economic activity[15]; and the tax avoidance schemes it devises, that allow large corporations, wealthy individuals and the banks themselves to shift the collective tax bill over to ordinary businesses and citizens.[16] Ironically, a highly profitable financial sector is often lauded as a major contributor to a nation's prosperity, when in fact these profits are accrued almost entirely at everyone else's cost. Overall, the financial sector is – as currently structured – parasitic upon society at large.[17]

How was it that mainstream economic thinking forgot the lessons of the 1930s, of how banking could become so destructively dysfunctional and dangerously unstable? It was due to a complex interplay of ideological bias, financial sector influence and complacency.

The Cold War encouraged a simplistic polarisation between the ideas of individualistic, free market capitalism on the one hand, as opposed to collective, state planned communism on the other.[18] Among those defensive of capitalism, it became a matter of almost religious faith that the less business was regulated and coordinated by government, the better; the liberated forces of entrepreneurship and competition would spontaneously produce the best possible economic and social outcome. In synchrony, academic economists in the 'west' incorporated this idealised view of capitalism into the very foundations of their discipline, by assuming that the economy could be modelled essentially as the interaction of fully rational and informed economic agents, the sum of whose individually self-serving actions would translate into an efficient, stable system delivering the maximum benefit for all.[19] Crucially, it was assumed that money would flow frictionlessly through this system to where is would be best put to use, as water naturally finds its level under the simple force of gravity. The business of banking, seen as a merely passive conduit for money to the underlying 'real' economy, could therefore be ignored.[20] Unwelcome consequences of the free market – particularly in the financial sector – were pretty much defined out of existence[21], and economists who studied such 'market failure' came to be dismissed as maverick.[22] Mainstream economics, aping rigorous science, devoted itself to the elaboration of sophisticated mathematical models – based on assumptions about human economic behaviour, however, that were quite unreal.[23] “As I see it,” wrote a Nobel Prize-winning economist a year after the height of the financial crisis, “the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.”[24] According to a former member of the Bank of England's Monetary Policy Committee, “the typical graduate macroeconomics and monetary economics training received at Anglo-American universities during the past 30 years or so, may have set back by decades serious investigations of aggregate economic behaviour and economic policy-relevant understanding. It was a privately and socially costly waste of time and other resources.”[25]

Even in the decades immediately following the Great Depression, the powerful, well-connected banking lobby had managed to resist prudent financial regulation.[26] But as mainstream economists – many of whom received funding from, and worked for, financial institutions – began to ignore the overall structure of the financial system, current and former bankers came to be seen as the only real 'experts' or possible candidates for official posts, despite all the obvious conflicts of interest.[27] In the words of an unusually free-thinking former IMF chief economist, “A whole generation of policy makers has been mesmerized by Wall Street, always and utterly convinced that whatever the banks said was true.”[28] Banking legislation and accounting rules were written by and for bankers[29], and financial innovation was encouraged, based on the universal justification that competition and market forces would inevitably render the financial sector stable, efficient and socially beneficial.[30] Ironically, the contribution of prudential regulation to the relative stability of post-1930s banking added to the sense of complacency towards that very legislation. US Federal Reserve Chairman Alan Greenspan was typical in arguing that “modernization” of the financial sector was needed “to remove outdated restrictions that serve no useful purpose, that decrease economic efficiency,” and that “the self-interest of market participants generates private market regulation.”[31] In this spirit, a US regulatory agency's 2003 annual report featured a photo of a group of regulators and bankers taking a chainsaw, pruning shears and loppers to a stack of financial regulations.[32]

And so, from the 1960s, the financial sector came to operate increasingly on the basis of unrestrained competition and became more globalised, as 'fire-break' controls on the permitted scope of banking activities, the scale of bank lending and international capital flows were removed[33] – the effects of which were magnified by the adoption of computer and communications technology. The structure of the financial system, therefore, became increasingly determined by whatever new innovations and schemes would generate the greatest profits for market players. In this rawly competitive environment, banks came under greater pressure to maximise profits by lending as much as possible and putting any available capital to the most profitable use. They were thus impelled to push hard against the financial, and remaining regulatory, limits to prudent, sustainable banking and to find to new ways to push ever harder against those limits.[34]

The key innovations to emerge were securitisation and credit derivatives, techniques of financial engineering designed to optimise lending and borrowing by dealing with the risks of repayment default in quite new ways.[35] By securitisation, loans or anticipated cash-flows are repackaged to produce bonds, or securities. Whereas in the past banks extended loans and then kept them on their balance sheet until repayment, now they could sell these loans on to third party investors in the form of bonds.[36] Similarly, with the use of credit derivatives third parties, acting somewhat like insurers, could take on the risk of repayment defaults, in return for a fee.[37] The general idea – promoted by bankers and institutions such as the IMF – was that, according to the notion of 'market completion', money could now flow around the world more efficiently, as investors and borrowers could be matched across the globe by any manner of means. Thus, it was said, with securitisation and derivatives the risk of loan defaults could now be dispersed widely among willing investors rather than being concentrated in banks, thereby – crucially – making the banking sector more resilient.[38]

The reality, however, was quite the reverse. Since the sale of financial products was driven by the increasingly short-term profit motive, financial innovations were actually aimed primarily at hiding risk rather than reducing it.[39] Banks could therefore get away with profiting from more reckless lending – for as long as “the delusions of this time” could be maintained, as the FSA put it.[40] Highly elaborate and opaque mathematical models, touted by bankers as allowing the risk of complex new securities to be carefully controlled, were systematically over-optimistic and achieved a merely illusory precision.[41]  While many such securities initially looked good by reliably generating a high return over the short- or medium-term, this came with the hidden cost of greater long-term catastrophic risk.[42] “IBGYBG,” short for “I'll be gone, you'll be gone,” became of a catch-phrase among these products' innovators and sellers, including the ratings agencies – primarily Moody's, Standard & Poor's and Fitch – who earned colossal fees from giving their 'AAA' seal of approval to these innovations.[43] When in 1996 the banks succeeded in having their own risk models incorporated into international banking standards (Basel II), this undermined precisely the kind of regulation that may have protected the banking system as a whole from those very models' biases and limitations.[44]

By using credit derivatives, individual banks profited from regulatory loopholes in the insurance sector in a way that collectively made the banking system less stable.[45] Derivatives were championed as increasing the 'price-discovery' powers of the market place, when in fact their use made the task of valuing companies, including banks, far more difficult. The proliferation of often complex and opaque derivative transactions – with many going unrecorded, 'over the counter' – meant that financial institutions became interconnected in such maddeningly complex ways that it became impossible really to know what types and levels of risk any bank – or the sector as a whole – was exposed to.[46] Derivatives turned out to be, indeed, “financial weapons of mass destruction.”[47]

With the competitive drive for profits pressuring banks into putting any available capital to the most profitable use, they reduced their levels of 'idle' working capital to the bare minimum. To this end, banks relied increasingly on cheap short-term loans in order to honour day-to-day payments – in the form of interbank lending, and with so-called commercial paper and repurchase agreements or 'repo'.[48] An executive at the US investment bank Bear Stearns recalled his firm's daily repo financing: “Our guys would borrow maybe $75 billion a day, ... most of it daily.”[49] Even many supposedly prudent high street banks across Europe began to adopt this short-term funding strategy. In other words, banks made money by maintaining only a dangerously wafer-thin buffer against cash-flow insolvency, or a liquidity crisis. Much of this bank borrowing derived from minimally regulated, and potentially flighty, money market mutual funds, bank-like institutions operating in a manner that avoids costly banking regulation.[50]

An additional danger accompanying both derivatives and repos is that they were granted exemption from bankruptcy laws, measures designed to avert mass panic withdrawals of funds from companies to allow, at the very least, an orderly and fair distribution of funds to their creditors. However, financial institutions that are on the creditor side of derivative and repo contracts with an apparently faltering bank have both the incentive and the right rapidly to withdraw their funds, along with sizeable penalties, before others do, in a vicious circle leading to a 'run' on the fund. This protection against the risk of counterparty bankruptcy also seriously undermines the basic 'market discipline' of carefully having to monitor the creditworthiness of those one enters into contracts with.[51]

Prudent regulation was evaded and risk concealed further by means of ever more elaborate accounting techniques (developed largely by the 'Big Four', comprising Deloitte, PwC, Ernst & Young and KPMG) increasingly deployed by corporations including banks, and even governments.[52] The widespread use of 'off-balance sheet' accounting – usually involving 'offshore' or low-regulation jurisdictions such as the City of London, the Cayman Islands or some US states – meant that company accounts, particularly those of banks, no longer presented a true picture of their financial condition, a basic requirement for averting fraud and enabling market forces to operate properly.[53] “Accounting has become a new exercise in creative fiction,” declared the head of a prominent investment firm, while a member of an urgent task force at the Accounting Standards Board went as far as to argue that the banking collapse was “a crisis largely caused by accounting.”[54]

Through the evolution and complex interplay of these financial innovations, there grew a vast 'shadow banking' system where banking activities are conducted out of range of even the light regulation covering standard banking.[55] In the shadow banking system in particular, the traditional checks and balances of prudent, sustainable banking, based on transparency and accountability, all but disappeared, enabling bankers to profit from deception on an institutional scale. The financial crisis was caused by a sudden collapse in this shadowy system of smoke and mirrors – essentially a bank run within the financial sector. High street banks, which had become increasingly involved, directly or indirectly, in shadow banking, were therefore brought down with it.[56]

Ironically, relative to the scale of the problem the causes of the crisis, in shadow banking, have barely been addressed at all, while the much trumpeted reforms of standard banking have been minimal[57] – largely due to intensive lobbying from the banking industry.[58] The major part of the government, taxpayer-funded, response to the crisis has been simply to re-inflate the bubble economy; most of the money supposedly pumped into our real economy through 'quantitative easing' has effectively disappeared into the financial sector.[59] Hence the widespread view that further financial crisis is inevitable; one financial consultancy report predicts that excessive private sector money supply, asset price bubbles and financial crises will plague the global economy for the foreseeable future.[60]

In supposedly democratic countries it is, in principle, the ordinary voting public that is responsible for how its society operates. However, the electorate has been denied the necessary analysis – whether from the news media or from genuinely informative public inquiries – of banking, money-creation, shadow banking and accounting.[61] Were this provided we might, for example, begin to recognise the ways in which free-market finance inherently tends towards instability rather than stability[62]; to consider the case for replacing our current private sector, out-of-control, debt-based system of money creation with a publicly accountable, prudent and measured system of money supply; to see a need radically to rewrite financial law from the ground up so that banking can rest on far simpler, solid foundations and reliably serve the public interest, rather than being a confused and frenzied casino that weighs down, distorts and destabilises our real economy[63]; and to bring accounting rules under democratic control as statutory legislation rather than being left to unaccountable, private bodies controlled by the accounting firms and their corporate clients.[64] Just as Dr Frankenstein was responsible for creating a tragic human monster, so are we collectively ultimately responsible for our severely dysfunctional financial system and the activities of its bankers.

1  Michael Kumhof, 'The Chicago Plan Revisited', presentation at 31st Annual Monetary Trade Conference: 'Fixing the Banking System for Good', Global Interdependence Center and LeBow College of Business, 17 April 2013. See also Victoria Chick, 'Why Don't Academics Understand Money?', presentation at 3rd annual Positive Money Conference, 'Modernising Money', 26 January 2013; Stephen A. Zarlenga, The Lost Science of Money (Valatie, NY: American Monetary Institute, 2002).

2  Financial Crisis Inquiry Commission (FCIC), Financial Crisis Inquiry Report (U.S. GPO: January 2011), ch.2-4; Nicholas Shaxson, Treasure Islands: Tax Havens and the Men Who Stole the World  (London: Vintage Books, 2012), pp.73-102; Daniel K. Tarullo, Board of Governors of the Federal Reserve System, 'International Cooperation in Financial Regulation,' 22 February 2013, pp.2-3; Eric Helleiner, 'The Politics of Global Finance: Does Money Make the World Go ’Round?” ', 19 November 2008, pp.55-6; Victoria Chick, 'The current banking crisis: an evolutionary view', 2009; Andrew Jackson & Ben Dyson, Modernising Money: Why our monetary system is broken and how it can be fixed (London: Positive Money, 2012), pp.42-5; Gary Gorton, 'Slapped in the Face by the Invisible Hand: Banking and the Panic of 2007', 9 May 2009Barbara Crutchfield George, Lynn V. Dymally & Maria K. Boss, 'The Opaque and Under-Regulated Hedge Fund Industry: Victim or Culprit in the Subprime Mortgage Crisis?', New York University Journal of Law and Business, Vol. 3, No. 2 (2009), pp.385-9; Thorvald Grung Moe, 'Shadow Banking and the Limits of Central Bank Liquidity Support', Levy Economics Institute, April 2012, p.61; L. Randall Wray, 'Minsky’s Money Manager Capitalism and the Global Financial Crisis', Levy Economics Institute, March 2011; Paul Krugman, 'Disaster and Denial', New York Times, 13 December 2009.

3  Stephen G Cecchetti, Piti Disyatat & Marion Kohler, 'Integrating financial stability: new models for a new challenge', Joint BIS-ECB Workshop, 'Monetary policy and financial stability', 10-11 September 2009; Angana Banerji, 'IMF Performance in the Run-Up to the Financial and Economic Crisis: Multilateral Surveillance', IMF Independent Evaluation Office, 9 December 2010, pp.24-5; IMF Independent Evaluation Office, IMF Performance in the Run-Up to the Financial and Economic Crisis: IMF Surveillance in 2004-07, 2011, p.18; Steve Keen, Debunking Economics, revised and expanded edition (London & New York: Zed Books, 2011), pp.6,12-14; Jackson & Dyson, Modernising Money, pp.116-7; Markus K. Brunnermeier & Yuliy Sannikov, 'A Macroeconomic Model with a Financial Sector', National Bank of Belgium Working Paper No. 236, 8 April 2012.

4  Quoted in Adair Turner, 'Monetary and Financial Stability: Lessons from the Crisis and from classic economics texts', Speech at South African Reserve Bank, 2 November 2012, p.10.

5  Mervyn King, 'Twenty years of inflation targeting', The Stamp Memorial Lecture, London School of Economics, 9 October 2012, p.5.

6  Franklin Allen, quoted in 'Why Economists Failed to Predict the Financial Crisis', Knowledge@Wharton, 13 May 2009.

7  Jarmoir Benes & Michael Kumhof, 'The Chicago Plan Revisited', IMF Working Paper, August 2012, pp.4-17; Keen, Debunking Economics, pp.305-14; Adair Turner, 'Money and Debt: Radical Solutions to the Challenge of Deleveraging', presentation at 31st Annual Monetary Trade Conference: 'Fixing the Banking System for Good', 17 April 2013; Jackson & Dyson, Modernising Money, pp.40-42,44,59-61,75-114; Alistair Milne, The Fall of the House of Credit (Cambridge: Cambridge University Press, 2009), pp.26-7.

8  Turner, 'Monetary and Financial Stability', p.19.

9  Jackson & Dyson, Modernising Money, pp.110-48,153,157,167-8; Moe, 'Shadow Banking', pp.52-68.

10  Martin Wolf, 'The Fed is right to turn on the tap', Financial Times, 9 November 2010.

11  Turner, 'Monetary and Financial Stability', p.8.

12  Jackson & Dyson, Modernising Money, pp.155-60.

13  Andrew Haldane, 'The $100 Billion Question', Bank of England, March 2010, pp.2-6; Jackson & Dyson, Modernising Money, pp.90-95,170-2.

14  Mervyn King, 'The Today Lecture 2012', BBC Radio 4, 2 May 2012.

15  Jackson & Dyson, Modernising Money, pp.125-6,144-5,148-9.

16  Austin Mitchell & Prem Sikka, 'The Pin-Stripe Mafia: How Accountancy Firms Destroy Societies', Association for Accountancy & Business Affairs, 2011; James S. Henry, 'The Price of Offshore Revisited', Tax Justice Network, July 2012; Richard Brooks, The Great Tax Robbery: How Britain Became a Tax Haven for Fat Cats and Big Business (London: Oneworld, 2013).

17  Lydia Prieg, Tony Greenham & Josh Ryan-Collins , 'Quid Pro Quo: Redressing the privileges of the banking industry', New Economics Foundation, September 2011; Nicholas Shaxson and John Christensen, 'The Finance Curse', Tax Justice Network, May 2013; Lydia Prieg & Heather Stewart, 'Britain's banking system is not a national asset. It's a curse', Guardian, 30 May 2013.

18  David Harvey, A Brief History of Neoliberalism (Oxford & New York: Oxford University Press, 2005); Naomi Klein, The Shock Doctrine: The Rise of Disaster Capitalism  (London: Allen Lane, 2007); Yves Smith, Econned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism (New York: Palgrave Macmillan, 2010), ch.5.

19  Keen, Debunking Economics, ch.3,8-10; Victoria Chick, 'Gresham's Law in Economics: Background to the Crisis', Gresham College Lecture, 8 March 2012; Victoria Chick, 'Economics is lost - it must rediscover life's values', Guardian, 18 November 2011.

20  Jackson & Dyson, Modernising Money, pp.116-7; Dirk J. Bezemer, '”No One Saw This Coming”: Understanding Financial Crisis Through Accounting Models', 16 June 2009.

21  John Cassidy, How Markets Fail: The Logic of Economic Calamities (London: Penguin, 2009), ch.1-8.

22  Angana Banerji, 'IMF Performance', pp.14-32; Sanjay Dhar, 'IMF Performance in the Run-Up to the Financial and Economic Crisis: Bilateral Surveillance of the United States', IMF Independent Evaluation Office, 9 December 2010, pp. 24-31,51-63; FCIC, Financial Crisis Inquiry Report, pp.17-18; Beat Balzli and Michaela Schiessl, 'The Man Nobody Wanted to Hear: Global Banking Economist Warned of Coming Crisis', Spiegel, 8 July 2009; Donald Gillies, 'Economics and Research Assessment Systems', Economic Thought, Vol.1, No.1 (2012).

23  David Colander et. al., 'The Financial Crisis and the Failure of Academic Economics', Working paper No.1489, Kiel Institute for the World Economy, February 2009; Tony Lawson, 'The current economic crisis: its nature and the course of academic economics', Cambridge Journal of Economics, Vol.33, No.4 (July 2009); Victor A. Beker, 'On the economic crisis and the crisis of economics', Real-World Economics Review, No.56 (March 2011); Jack Reardon, 'A radical reformation of economics education', Real-World Economics Review, No.62 (December 2012); Aditya Chakrabortty, 'Mainstream economics is in denial: the world has changed', Guardian, 28 October 2013; Phillip Inman, 'Economics lecturers accused of clinging to pre-crash fallacies', Guardian, 10 November 2013.

24  Paul Krugman, 'How Did Economists Get It So Wrong?' New York Times, 6 September 2009.

25  Willem Buiter, 'The unfortunate uselessness of most ‘state of the art’ academic monetary economics', Willem Buiter's Maverecon blog, FT.com, 3 March 2009.

26  Benes & Kumhof, 'The Chicago Plan Revisited', p.19; Shaxson, Treasure Islands, pp.74-6.

27  Andrew Baker, 'Restraining regulatory capture? Anglo-America, crisis politics and trajectories of change in global financial governance', International Affairs, Vol.86, No.3 (2010); Jessica Carrick-Hagenbarth & Gerald A. Epstein, 'Dangerous interconnectedness: economists’ conflicts of interest, ideology and financial crisis', Cambridge Journal of Economics, Vol.32, No.1 (January 2012); Charles Ferguson, 'Heist of the century: university corruption and the financial crisis', Guardian, 21 May 2012; Tamasin Cave, 'More than a lobby: finance in the UK', openDemocracy, 26 September 2013; Andrew Bowman, 'The grip of the banking lobby on British politics seems unlikely to soften soon', openDemocracy, 24 January 2011; University of Manchester Centre for Research on Socio Cultural Change, 'An alternative report on UK banking reform', (Manchester: CRESC, 2009); Kenneth Haar, Andy Rowell and Yiorgos Vassalos, 'Would you bank on them?' Corporate Europe Observatory, February 2009; David Miller & William Dinan, 'Revolving Doors, Accountability and Transparency - Emerging Regulatory Concerns and Policy Solutions in the Financial Crisis', OECD Discussion Paper, 28 April 2009; Ellen Brown, 'Making the World Safe for Banksters', CounterPunch, 5 September 2013.

28  Simon Johnson, 'The Quiet Coup', Atlantic Magazine, May 2009.

29  Ranjit Lall, 'From failure to failure: The politics of international banking regulation', Review of International Political Economy, Vol.19, No.4 (October 2012); Prem Sikka, written evidence to Parliamentary Commission on Banking Standards, Panel on Tax, Audit and Accounting, 16 January 2013, p.59; Michael Page, memorandum to House of Commons Treasury Committee, Banking Crisis, Vol. II - Written Evidence, 1 April 2009, Ev.5-7; Edward Fullbrook, 'The Political Economy of Bubbles', Real-World Economics Review, No.59 (March 2012); Eric Lipton and Ben Protess, 'Banks’ Lobbyists Help in Drafting Financial Bills', New York Times, 23 May 2013; George Monbiot, 'To us, it's an obscure shift of tax law. To the City, it's the heist of the century', Guardian, 7 February 2011.

30  Banerji, 'IMF Performance', pp.14-17,25-6; Dhar, 'IMF Performance', pp.3-32.

31  Quoted in FCIC, Financial Crisis Inquiry Report, pp.35,53.

32  FCIC, ibid., p.53; Federal Deposit Insurance Corporation, 2003 Annual Report, p.13.

33  Raj Date & Michael Konczal, 'Out of the Shadows : Creating a 21st Century Glass-Steagall', in Robert Johnson & Erica Payne (ed.), Make Markets Be Markets, Roosevelt Institute, March 2010, pp.61-70; Kevin P. Gallagher, 'Regaining Control? Capital Controls and the Global Financial Crisis', PERI Working Paper No.250, Feb 2011, pp.2-7; Timothy A. Canova, 'Financial Liberalization, International Monetary Dis/Order, and the Neoliberal State', American University International Law Review, Vol.15, No.6 (2000).

34  Victoria Chick, 'The current banking crisis: an evolutionary view', 2009, pp.3-5; Andrew G Haldane, 'Financial arms races', Bank of England, 14 April 2012; Smith, Econned, ch.6.

35  Gillian Tett, Fool's Gold (London: Abacus, 2010), ch.1-9.

36  FCIC, Financial Crisis Inquiry Report, pp.38-45,ch.7-8; IMF, Global Financial Stability Report, April 2008, ch.2; House of Commons Treasury Committee, Financial Stability and Transparency, 3 March 2008, pp.15-24; Steven L. Schwarcz, 'The global alchemy of asset securitization', International Finance Law Review (May 1995).

37  FCIC, Financial Crisis Inquiry Report, pp.45-50; Houman B. Shadab, 'Counterparty Regulation and Its Limits: The Evolution of the Credit Default Swaps Market', New York Law School Law Review, Vol.54, No.2 (2009/10).

38  Adair Turner, 'Securitisation, Shadow Banking and the Value of Financial Innovation', Rostov Lecture on International Affairs, John Hopkins University, 19 April 2012, pp.1-4; Dhar, 'IMF Performance', pp.5-16; Banerji, 'IMF Performance', p.17; Moe, 'Shadow Banking', pp.59-60.

39  Michael Simkovic, 'Secret Liens and the Financial Crisis of 2008', American Bankruptcy Law Journal, Vol.83, (2009); Arthur E. Wilmarth, Jr., 'The Dark Side of Universal Banking: Financial Conglomerates and the Origins of the Subprime Financial Crisis', Connecticut Law Review, Vol.41, No.4 (May 2009); Arthur E. Wilmarth, Jr., 'Conflicts of Interest and Corporate Governance Failures at Universal Banks During the Stock Market Boom of the 1990s: The Case of Enron and Worldcom', George Washington University Legal Studies Research Paper No.234 (2006).

40  Financial Services Authority, The failure of the Royal Bank of Scotland, December 2011, p.145.

41  Joe Nocera, 'Risk Management', New York Times, 2 January 2009; Cassidy, How Markets Fail, pp.274-9; Carrick Mollenkamp, Serena Ng, Liam Pleven & Randall Smith, 'Behind AIG's Fall, Risk Models Failed to Pass Real-World Test', Wall Street Journal, 31 October 2008; Avinash Persaud, 'Why bank risk models failed', Vox, 4 April 2008; Tim Harford, 'Black-Scholes: The maths formula linked to the financial crash', BBC Radio 4, More or Less, 28 April 2012; FSA, The failure of the Royal Bank of Scotland, pp.153-5,374-5.

42  Joshua Coval, Jakub Jurek, & Erik Stafford, 'The Economics of Structured Finance', Journal of Economic Perspectives, Vol.23, No.1 (Winter 2009); Efraim Benmelech & Jennifer Dlugosz, 'The alchemy of CDO credit ratings', Journal of Monetary Economics, Vol.56, No.5 (July 2009).

43  'Statement of Richard Michalek, former VP/Senior Credit Officer, Moody's Investors Service', submitted to Permanent Subcommittee on Investigations, US Senate, 23 April 2010, p.5; FCIC, Financial Crisis Inquiry Report, pp.8,17,118-122; Cassidy, How Markets Fail, pp.591-6.

44  Andrew G Haldane, 'Constraining discretion in bank regulation', Bank of England, 9 April 2013; Mervyn King, 'Banking: From Bagehot to Basel, and Back Again', Bank of England, 25 October 2010, pp.12-13; Andrew G Haldane, 'The dog and the frisbee', Bank of England, 31 August 2012.

45  FCIC, Financial Crisis Inquiry Report, pp.45-51,139-42; Lynn A. Stout, 'Derivatives and the Legal Origin of the 2008 Credit Crisis', Harvard Business Law Review, Vol.1 (2011).

46  Markus K. Brunnermeier, 'Deciphering the Liquidity and Credit Crunch 2007–2008', Journal of Economic Perspectives, Vol.23, No.1 (Winter 2009), pp.96-8.

47  'Buffett warns on investment 'time bomb'', BBC News, 4 March 2003.

48  IMF, Global Financial Stability Report, October 2010, ch.2.

49  Quoted in William D. Cohan, House of Cards: A Tale of Hubris and Wretched Excess on Wall Street (New York: Doubleday, 2009), p.37.

50  Richard G. Anderson & Charles S. Gascon, 'The Commercial Paper Market, the Fed, and the 2007-2009 Financial Crisis', Federal Reserve Bank of St. Louis Review (November/December 2009), pp.594-601; Milne, Fall of the House of Credit, pp.29-37, ch.6,9.

51  Mark J. Roe, 'The Derivatives Market's Payment Priorities as Financial Crisis Accelerator', Stanford Law Review, Vol.36, No.3 (March 2011); Matt Taibbi, 'Wall Street's Bailout Hustle', Rolling Stone, 17 February 2010; Ellen Brown, 'The Armageddon Looting Machine', CounterPunch, 19 September 2013.

52  House of Commons Treasury Committee, Banking Crisis, Vol. II - Written Evidence, 1 April 2009, Memorandum from Professor Prem Sikka, Ev285-293; Mark Brown & Alex Chambers, 'How Europe's governments have enronized their debts', Euromoney, September 2005; Beat Balzli, 'Greek Debt Crisis: How Goldman Sachs Helped Greece to Mask its True Debt', Der Spiegel, 8 February 2010; Louise Story, Landon Thomas Jr. and Nelson D. Schwartz, 'Wall St. Helped to Mask Debt Fueling Europe’s Crisis', New York Times, 13 February 2010; Kerin Hope, Megan Murphy & Gillian Tett, 'The eurozone: Athenian arrangers', Financial Times, 16 February 2010; David Enrich & Sara Schaefer Muñoz, 'EU Lenders Kick Troubles Down Road', Wall Street Journal, 2 April 2012; George Monbiot, 'The bill for PFI contracts is an outrage', Guardian, 22 November 2010.

53  Frank Partnoy & Lynne E. Turner, 'Bring Transparency to Off-Balance Sheet Accounting', in Make Markets Be Markets, pp.85-95; Prem Sikka, 'Financial crisis and the silence of the auditors', Accounting, Organizations and Society, Vol.34, Issues 6-7 (August-October 2009); Sinead Cruise, 'Accounting rules mask banks' financial health: investors', Reuters, 21 June 2013; Chao-Shin Liu & Thomas Schaefer, 'Asset Sales or Loans: The Case of Lehman Brothers Repo 105s', The Accounting Educators' Journal, Vol.21 (2011); Anton R. Valukas, Statement to Committee on Banking, Housing and Urban Affairs, US Senate, 6 April 2011; Local Authority Pension Fund Forum, 'Leading Counsel confirms substantial legal problems with IFRS', 19 June 2013; Ben Levenstein & Robert Talbut, 'The pernicious influence of US audit rules', Financial Times, 22 November 2012; Shaxson, Treasure Islands, ch.9; Commons Treasury Committee, Financial Stability and Transparency, pp.14-15

54  Quoted in Joseph A. Giannone & Megan Davies, 'Lazard CEO sees world's market woes just beginning', Reuters, 30 October 2008; Quoted in House of Lords, Select Committee on Economic Affairs, Auditors: Market Concentration and their Role, Vol.I - Report, 30 March 2011, p.33.

55  Tobias Adrian & Adam B. Ashcraft, 'Shadow Banking: A Review of the Literature', Federal Reserve Bank of New York Staff Report No.580, October 2012; Stijn Claessens, Zoltan Pozsar, Lev Ratnovski & Manmohan Singh, 'Shadow Banking: Economics and Policy' IMF Discussion Note SDN/12/12, 4 December 2012.

56  Brunnermeier, 'Deciphering the Liquidity and Credit Crunch'; Tett, Fool's Gold, ch.11-15; Frederic S. Mishkin, 'Over the Cliff: From the Subprime to the Global Financial Crisis', Journal of Economic Perspectives, Vol.25, No.1 (Winter 2011); Marcin Kacperczyk & Philipp Schnabl, 'When Safe Proved Risky: Commercial Paper During the Financial Crisis of 2007-2009', Journal of Economic Perspectives, Vol.24, No.1 (Winter 2010); Paul Mizen, 'The Credit Crunch of 2007-2008: A Discussion of the Background, Market Reactions, and Policy Responses', Federal Reserve Bank of St. Louis Review (September/October 2008); Anderson & Gascon, 'The Commercial Paper Market'; Darrel Duffie, 'The failure dynamics of dealer banks', Bank for International Settlements, Working Paper No.301, March 2010; Cary Martin, 'Private Investment Companies in the Wake of the Financial Crisis: Rethinking the Effectiveness of the Sophisticated Investor Exemption', Delaware Journal of Corporate Law, Vol.37, No.1 (2012).

57  Eric J. Weiner, 'The next financial crisis', Los Angeles Times, 20 September 2013; Yalman Onaran, Michael J. Moore & Max Abelson, 'Banks Seen at Risk Five Years After Lehman Collapse', Bloomberg, 10 September 2013; Eric Helleiner, 'Should we be feeling more secure?' Toronto Star, 24 September 2011; Michael Hiltzik, 'Big U.S. Banks keeping door open to another financial crisis', Los Angeles Times, 13 September 2013; Steve Denning, 'Alan Blinder: Six Reasons Why Another Financial Crisis Is (Still) Inevitable', Forbes, 12 September 2013; Gretchen Morgenson, 'After a Financial Flood, Pipes Are Still Broken', New York Times, 14 September 2013; Editorial: 'If It Looks Like a Bank, Regulate It Like a Bank', Bloomberg, 3 November 2013; Ben Shreckinger, 'Did an invisible run on banks kill the economy?' Boston Globe, 23 December 2012; Michael Mackenzie and Tracy Alloway, 'Repo ‘fire sale’ risk worries regulators', Financial Times, 2 October 2013; David Reilly, 'Repos' Still Cast a Shadow', Wall Street Journal, 19 June 2012; Emily Stephenson & Douwe Miedema, 'Fed's Tarullo: short-term bank funding should be top regulatory focus', Reuters, 20 September 2013; Morgan Ricks, 'Reforming the Short-Term Funding Markets', Harvard Law School, John M. Olin Center Discussion Paper, No. 713 (2012); Enrico Perotti, 'We must escape the grip of short-term funding', Vox, 5 July 2010; Anat R. Admati et. al., 'Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity is Not Socially Expensive', Stanford Graduate School of Business, 22 October 2013; Yalman Onaran, 'Bank Regulators Should Toss Basel, Use Leverage, Hoenig Says', Bloomberg, 14 September 2012.

58  Matt Taibbi, 'How Wall Street Killed Financial Reform', Rolling Stone, 10 May 2012; William D. Cohan, 'Was This Whistle-Blower Muzzled?', International Herald Tribune, 21 September 2013; Mayra Rodríguez Valladares, 'Waiting for Uniform Derivatives Rules Is a Losing Proposition', American Banker, 11 June 2013; M.C.K, 'The SEC's dereliction of duty', Economist, Free exchange blog, 7 September 2012.

59  House of Commons, Treasury Select Committee - Quantitative Easing: Written evidence submitted by Positive Money, January 2013; Josh Ryan-Collins, Richard Werner, Tony Greenham & Giovanni Bernardo, Strategic quantitative easing: Stimulating investment to rebalance the economy, New Economics Foundation, July 2013; Andrew Huszar, 'Confessions of a Quantitative Easer', Wall Street Journal, 11 November 2013; Liam Halligan, 'UK QE has failed, says quantitative easing inventor', BBC News, 22 October 2013.

60  A World Awash in Money: Capital Trends Through 2020, Bain & Co., November 2012. See also Zoltan Pozsar, 'Institutional Cash Pools and the Triffin Dilemma of the U.S. Banking System', IMF Working Paper No.11/190, August 2011.

61  Renaud Lambert, 'Economical with the truth', Le Monde diplomatique (March 2012); Norbert Häring, 'The veil of deception over money', Real-World Economics Review, No.63 (March 2013); Patrick Chalmers, 'Why Doesn't the Media Understand Money?', presentation at 3rd annual Positive Money Conference, 'Modernising Money', 26 January 2013; David Dayden, 'The Media Can't Stop Sucking Up to Alan Greenspan', New Republic, 22 October 2013.

62  Steve Keen, 'Instability in Financial Markets: Sources and Remedies', Institute for New Economic Thinking, April 2012; Moe, 'Shadow Banking', pp.55-66.

63  Jackson & Dyson, Modernising Money, pp.175-321; Andrew Jackson, 'Sovereign Money: Paving the Way for a Sustainable Recovery', Positive Money, November 2013; Mary Mellor, 'Could the money system be the basis of a sufficiency economy?', Real-World Economics Review, No.54 (September 2010); Timothy A. Canova, 'Lincoln's Populist Sovereignty: Public Finance Of, By and For the People', Chapman Law Review, Vol.12 (2009), pp.581-90; Morgan Ricks, 'Regulating Money Creation After the Crisis', Harvard Business Law Review, Vol.1 (2011).

64  Sikka, written evidence to Parliamentary Commission on Banking Standards; Vivien Beattie, Stella Fearnley & Tony Hines, memorandum to House of Commons Treasury Committee, Banking Crisis, Vol. II - Written Evidence, 1 April 2009 Ev.10-13; Prem Sikka, Steven Filling & Pik Liew, 'The audit crunch: reforming auditing', Managerial Auditing Journal, Vol.24, No.2 (2009).

By Keith Fisher, November 2013.
keith@flyingfish.org.uk

Further web links:

Monetary Imperialism '… In effect, foreign countries have been taxed without representation over how their loans to the U.S. Government are employed. European central banks were not yet prepared to create their own sovereign wealth funds to invest their dollar inflows in foreign stocks or direct ownership of businesses. They simply used their trade and payments surpluses to finance the U.S. budget deficit. … The system may have developed without foresight, but quickly became deliberate. My book Super Imperialism sold best in the Washington DC area, and I was given a large contract through the Hudson Institute to explain to the Defense Department exactly how this extractive financial system worked. I was brought to the White House to explain it, and U.S. geostrategists used my book as a how-to-do-it manual (not my original intention). ...’ CounterPunch 29.11.17
Making Tax Vanish: How the practices of consumer goods MNC RB show that the international tax system is broken 'Big business is able to take advantage of loopholes in global tax laws and avoid tax on a massive scale. This deprives governments around the world of the money they need to tackle poverty and inequality. It means there is less for them to invest in healthcare, education and jobs. This report examines the failings of the global tax system that facilitate mass tax avoidance.' Oxfam 13.7.17
To deal with climate change we need a new financial system 'Abolishing debt-based currency isn’t a new idea, but it could hold the secret to ending our economies’ environmentally damaging addiction to growth.' Guardian 5.11.16
QE makes the rich richer: Positive Money 'Positive Money’s Executive Director, Fran Boait explains why [they are] protesting against the Bank of England and the recent moves it’s taken.' CNBC 3.11.16
Why Theresa May Is Only Half Right: The Real Problem With the Bank of England 'It's time for a more radical approach to quantitative easing.'
Newsweek 2.11.16
Monetary policy has an enormous impact on politics. It's time for a radical rethink 'Theresa May knows monetary policy isn’t working. QE is increasing inequality, and low interest rates aren’t the solution.' Guardian 12.10.16
Scrapping cash: don’t let the banks coin it 'Smuggled into Rogoff's proposal to axe cash is the privatisation of the currency. Let's cling on to our notes, until publicly accountable central banks are ready to create digital reddies.' Prospect 10.16
?Ireland's Outrage Over EU's Apple Ruling Reveals Fraudulent Global Tax System 'It shows how subordinate to the corporations our establishment have become—they want a tax haven nation where workers pay countless charges and the wealthy pay nothing.' Common Dreams 30.8.16
From the Battle of Seattle to the Financial Crisis '[T]he financial sector succeeded by hitching the defense of its interests to one of the few remaining resonant assumptions of an otherwise crumbling neoliberal ideology: that the state is the source of all things bad that happens in the economy. While benefiting from the government bailout, Wall Street was able to change the narrative about the causes of the financial crisis, throwing the blame entirely on the state.' Foreign Policy in Focus 29.8.16
Banker Who’d Revolutionize Money Says It Can Be Done From Within
'Breitenbach ... says few are aware that it’s actually the commercial banks that have the largest role in money creation, not the central bank. Reverse that, and greater stability ensues, goes the thinking.' Bloomberg 17.8.16
Ever wondered how money is created? Watch the latest Big Money Questions show for a simple explainer 'How is money created? It masquerades as such a simple question, but it’s one that befuddles MPs, even economists and so many of us who happily use the stuff every day.' Daily Mail 29.7.16
Hillary Clinton's New Anti-Trump Ad Misses the Mark 'Clinton accuses Trump of "rooting" for a crash caused by her own donors.' Rolling Stone 25.6.16
Tax havens ‘serve no useful economic purpose’: 300 economists tell world leaders 'Experts including Thomas Piketty, Jeff Sachs, Nora Lustig and Angus Deaton call for more tax transparency.' Oxfam 9.5.16
Why younger people can’t afford a house: money became too cheap 'There has been a failure in both the media and government to properly diagnose the cause of high house prices. Until the causes – our systems of money and planning – are properly understood, we cannot hope to fix the problem.' Guardian 12.4.16
'Handbag economics' and the other myths that drive austerity 'Neoliberal politicians believe that that money can only be borrowed into existence, but that's not the case - and this fiction is forcing governments to resort to drastic measures.' Independent 27.3.16
How TTIP threatens UK’s ability to enforce fair taxes on corporations 'Corporations are regularly using secretive corporate courts to undermine the ability of countries to pass effective tax legislation, according to a new report, Taxes on trial: How trade deals threaten tax justice.'

Global Justice Now 15.2.16
Debt or Democracy: Public Money For Sustainability and Social Justice 'Mainstream economics mystifies the nature of money. Mellor’s Debt or Democracy explodes the myths, and provides the social alternative, argues Phil Armstrong.' Counterfire 11.2.16
What would the world look like if the banks crashed tomorrow? 'Huge chunks of money would suddenly drop out of circulation into thin air and the consequences would be catastrophic: cash machines and debit cards would all stop working, threatening the entire financial system with collapse. ... It is this scenario that is keeping governments enthralled to the banks. As taxpayers we are on the hook to spend a fortune rescuing big banks, because letting them fail would mean that millions of people would lose access to their money. However, this need not be the case ...' Independent 7.2.16
The World’s Favorite New Tax Haven Is the United States 'Moving money out of the usual offshore secrecy havens and into the U.S. is a brisk new business.'
Bloomberg 27.1.16
The tyranny of global finance '[F]inancial capital has emerged even stronger after the financial crisis having staved off regulation and putting the blame on public spending.' Transnational Institute 19.1.16
Britain's Trillion Pound Island - Inside Cayman 'The Cayman Islands. It is a Caribbean paradise of sun, sea and cocktails, but there is something else going on. Big money, big corporations... and seemingly no one paying a penny of tax.
Now Jacques Peretti travels to Cayman in search of the truth about this controversial British tax haven, and uncovers some shocking revelations for what this sun-drenched island means for everyone back in Britain.
Jacques meets the politicians, playboys and ex-pats on the islands in a bid to unravel the truth about a place with the population of Bognor Regis... but a trillion pounds in the bank!'
BBC 1.16
'Greed Is Not Good' 'Speaking a few subway stops away from the epicenter of the global financial crisis, U.S. Sen. Bernie Sanders promised to remake the financial system to serve America’s working families in a speech in New York City.' Common Dreams 5.1.16
What Really Caused the Crisis & What to Do About It 'Adair Turner discusses his new book, Between Debt and the Devil: Money, Credit, and Fixing Global Finance.' Institute for New Economic Thinking 15.10.15
Fortune 500 Companies Stash $2.1 Trillion Offshore as US Taxpayers Foot the Bill 'New study highlights the repeated failure by U.S. lawmakers to crack down on tax avoidance schemes.' Common Dreams 6.10.15
You can print money, so long as it’s not for the people 'Why do those who seem happy enough with quantitative easing recoil if it’s for social investment? Jeremy Corbyn’s idea of people’s QE is not so dangerous. ... [A]ll money is created from nowhere. In normal circumstances, it is created from nowhere as credit, by private banks, and lent to us, usually (85% of the time) in the form of a mortgage on an existing residential property.' Guardian 4.10.15
Proposals for Full-Reserve Banking: A Historical Survey from David Ricardo to Martin Wolf 'Full-reserve banking, which prohibits private money creation, has not been implemented since the 19th century. Thereafter, bank deposits became the dominant means of payment and have retained their position until today. The specific contribution of this paper is to provide a comprehensive outlook on the historical and contemporary proposals for full-reserve banking. The proposals for full-reserve banking have become particularly popular after serious financial crises.' Economic Thought 9.15
A Commentary on Patrizio Laina?’s ‘Proposals for Full-Reserve Banking: A Historical Survey from David Ricardo to Martin Wolf’ 'Patrizio Lainà’s paper, and our commentary here, reflect the perennial battle between the Currency and the Banking Schools. The main contention of the Currency School is that the functions of money creation and financial intermediation not only are, but should be, separable, and only be came entwined by a (reversible) accident of history whereby commercial banking developed on a fractional reserve basis in Europe'
Economic Thought 9.15
Bureaucrazies Versus Democracy 'The Troika of the IMF, the EU and the ECB is out to break the government of Greece. There is no other way to interpret their refusal to accept the Greeks' latest proposal.' Forbes 25.6.15
Follow the money: inside the world's tax havens From the Cayman Islands to Jersey, tax havens are busier than ever – a secretive world of offshore accounts and shell companies. Nothing to do with you?' Guardian 19.6.15
Banks are not intermediaries of loanable funds - and why this matters 'Problems in the banking sector played a seriously damaging role in the Great Recession. In fact, they continue to. This column argues that macroeconomic models were unable to explain the interaction between banks and the macro economy.  The problem lies with thinking that banks create loans out of existing resources. Instead, they create new money in the form of loans.' Vox 18.6.15
The reality gap in the role of banks 'BoE paper finds theoretical view of lenders is out of date.'
Financial Times 8.6.15
Banks are not intermediaries of loanable funds - and why this matters 'In the intermediation of loanable funds model of banking, banks accept deposits of pre-existing real resources from savers and then lend them to borrowers. In the real world, banks provide financing through money creation.' Bank of England 29.5.15
Can money be a force for good? 'There is more money in the world than at any other point in human history, so why doesn’t it reach the places that need it most?' openDemocracy 14.4.15
Iceland: Fundamental reform of the monetary system must be considered 'Frosti Sigurjonsson, Member of the Parliament of Iceland and Chairman of the Committee for Economic Affairs and Trade, today published a report outlining the need for a fundamental reform of Iceland’s monetary system.' Positive Money 1.4.15
A new era for monetary policy - Event with Adair Turner (video) 'The main speaker was Lord Adair Turner, former Chairman of the Financial Services Authority (FSA). Lord Turner outlined how the monetary system works and the current monetary policies countries are using. You can see his full talk here.' Positive Money 17.2.15
Republicans and Wall Street Say to Hell With Protecting the Public! 'It’s mostly the lobby, specifically a few very large banks that don’t like those restrictions on their activities. They want to be able to take more risk. They’re not worried of course about how that could negatively impact the rest of us... I think it tells you that democracy is basically broken.'
Johnson was the International Monetary Fund's economic counsellor (chief economist) and director of its Research Department, from March 2007 to the end of August 2008.
Moyers & Company 17.1.15
Teaching Economics After the Crash 'Aditya Chakrabortty reports on the student fight to reform their economics education.'
BBC Radio 4 2.12.14
Debate over monetary system grows 'Nearly all money is created by commercial banks in the act of lending. They also decide whom to lend it to, and for what purposes. Is this good for the economy? A growing movement is arguing for an alternative.' Deutsche Welle 28.11.14
MPs Debated Money Creation and Society 'After 170 years of silence from the House of Commons on the subject of money creation, there was finally a debate in the Main Chamber at the House of Commons on the subject of ‘Money Creation and Society’ on 20th Nov 2014.' Positive Money 27.11.14
Does money grow on trees? 'The debate about the banks' power to create money is becoming much more mainstream. After the recent event, Does Money Grow on Trees?, parliament is scheduled to debate the issue for the first time in 170 years.' openDemocracy 18.11.14
Growth: the destructive god that can never be appeased
'The blind pursuit of economic expansion stokes a cycle of financial crisis, and is wrecking our world. Time for an alternative.' Guardian 18.11.14
Matt Taibbi and Bank Whistleblower on How JPMorgan Chase Helped Wreck the Economy, Avoided Prosecution 'Alayne Fleischmann, JPMorgan Chase whistleblower. She was a deal manager at the bank, where she says she witnessed "massive criminal securities fraud" in its mortgage operations during the period leading up to the financial crisis.' Democracy Now! 7.11.14
The $9 Billion Witness: Meet JPMorgan Chase's Worst Nightmare ' "It was like watching an old lady get mugged on the street," she says. "I thought, 'I can't sit by any longer.'" ' Rolling Stone 6.11.14
Martin Wolf, Financial Times: Stop banks from creating money (Video) 'Martin Wolf, Chief Economics Commentator of Financial Times speaks at the event “Does Money Grow on Trees?” at the hall of the Institute for Chartered Accountants on 9th September 2014.' Positive Money 14.10.14
Sovereign Money in Critical Context 'Responding to criticism of monetary reform from a variety of economic viewpoints.' sovereignmoney.eu 10.14
Why aren't the British middle-classes staging a revolution? 'Why aren't the middle-classes more angry about stories such as the Phones4U collapse, and what will it take to tip us over the edge, asks Alex Proud.' Daily Telegraph 22.9.14
The Biggest Tax Scam Ever 'The numbers are staggering. More than $2 trillion in U.S.-based multinational profits currently sit in offshore accounts, representing, by credible estimates, in excess of $500 billion in unpaid taxes. If that money were deposited in federal coffers tomorrow, it would wipe out the deficit for 2014. And every year that Congress dithers on a crackdown, America is forfeiting an approximate $90 billion in revenue.' Rolling Stone 27.8.14
Making money - the state must reclaim its sovereign rights
'Where does money comes from? In the 97% of the money we use is created by commercial banks out of thin air, as they advance credit. Charlotte Jackson argues that this system costs us all dear - as citizens, debtors, taxpayers, and as victims of economic instability.' Ecologist 22.5.14
Why we can’t leave the power to create money in the hands of banks or regulators 'We cannot rely on failed regulators to prevent banks from abusing the power to create money, as Ann Pettifor suggests.' openDemocracy 18.5.14
Strip private banks of their power to create money 'Printing counterfeit banknotes is illegal, but creating private money is not. The interdependence between the state and the businesses that can do this is the source of much of the instability of our economies. It could – and should – be terminated.' Financial Times 24.4.14
Who Goes to Jail? Matt Taibbi on American Injustice Gap from Wall Street to Main Street 'Matt Taibbi is out with an explosive new book that asks why the vast majority of white-collar criminals have avoided prison since the financial crisis began, while an unequal justice system imprisons the poor and people of color on a mass scale.' Democracy Now! 15.4.14
All the Presidents’ Bankers: Nomi Prins on the Secret History of Washington-Wall Street Collusion 'Financial journalist Nomi Prins explores how a small number of bankers have played critical roles in shaping a century’s worth of financial, foreign and domestic policy in the United States.' Democracy Now! 8.4.14
Inflation: The fraud at the heart of our economy that is destroying the middle class 'Wages have not kept up with the 67-fold increase in money supply.' Independent 5.3.14
Change to UK's money system could solve our long-term economic problems 'If electronic money was created directly by the Bank of England progress would be made, but sparks would inevitably fly.' Guardian 6.2.14
The great story 'The US business press failed to investigate and hold accountable Wall Street banks and major mortgage lenders in the years leading up to the financial crisis of 2008. That’s why the crisis came as such a shock to the public and to the press itself. ... [W]hy was it that some journalists, mostly outside the mainstream, were able to produce work that in fact did reflect the radical changes overtaking the financial system while the vast majority in the mainstream did not?'
Columbia Journalism Review
2.1.14
Did Hyman Minsky find the secret behind financial crashes? 'Minsky's main idea is so simple that it could fit on a T-shirt, with just three words: "Stability is destabilising."' BBC News Magazine 24.3.14
Bank of England on Money and Money Creation in the Modern Economy
'We’ve been talking about the way money is created for the last 4 years. We’ve also argued that the textbooks used in universities were inaccurate. At last, there’s an official document and videos that we can send to all those economists, academics, politicians and everyone  who still shake their head when we’re explaining this.'
Positive Money 12.3.14
Insurers may be at the centre of the next big crisis '[I]nsurers are now a crucial part of the so-called shadow banking sector – an emerging hotch-potch of financial groups that are filling the vacuum left by shrinking banks.' Financial Times 26.12.13
Why reregulation after the crisis is feeble: Shadow banking, offshore financial centers, and jurisdictional competition 'A crucial element in the complex chain of factors that caused the recent financial crisis was the lack of regulation and oversight in the shadow banking sector, which is largely incorporated in offshore financial centers (OFCs), but instead of swift and radical regulatory reform in that sector after the crisis, we observe only incremental and ineffective measures. Why?' Regulation & Governance 12.13
Loophole Slowly Tightens on a Bank
'Th[e] sale to Lockhart was, for all practical purposes, a fiction. ... The reason these losses have not shown up on the profit and loss statement before is that accounting rules on securities valuation give banks a lot of leeway. ... Isn’t financial innovation wonderful?'
New York Times
19.12.13
UK banks benefited from £38bn ‘too big to fail’ state subsidy '[T]he inherent instability of the banking sector and the negative impacts of this instability compels the government to provide insurance, which, due to moral hazard, actually increases the risks that banks take – so increasing financial instability.' Positive Money 18.12.13
Volcker Rule Blame Game Begins
'It turns out that a good-sized chunk of Zions Bancorp's earnings existed only in its executives' minds. ... [A]ccounting rules had been letting Zions maintain a fiction.'
Bloomberg
16.12.13
Let's get this straight: AIG execs got bailout bonuses, but pensioners get cuts 'No one has accused city workers in Chicago or Detroit of bringing down the economy, but they could face pension cuts.' Guardian 9.12.13
Fed Eyes Financial System's Weak Link 'Problems in the short-term markets in 2008 were not unlike the bank runs—mass, simultaneous withdrawals of deposits—that preceded the Great Depression...' Wall Street Journal 1.12.13
Sustainable banking starts with determining human needs 'Banks should stop asking "how can we make as much money as possible?"' Guardian 29.11.13
Here's why Wall Street has a hard time being ethical 'A new report finds 53% of financial services executives say that adhering to ethical standards inhibits career progression at their firm. A former Wall Street trader describes why.' Guardian 25.11.13
The housing market: unsustainable asset bubble or ladder to prosperity? 'Fran Boait, campaign manager at Positive Money, looks at the role of the housing market in creating a more sustainable economy.' Blue & Green Tomorrow 23.11.13
Orthodox economists have failed their own market test 'Students are demanding alternatives to a free-market dogma with a disastrous record.' Guardian 20.11.13
Academics back students in protests against economics teaching 'Professors argue in letter to the Guardian against "dogmatic intellectual commitment" to "orthodoxy and against diversity."' Guardian 18.11.13
The great austerity shell game 'Here's how the capitalist scam works: let government borrow for crisis bailouts, then insist cuts pay for them. Guess who loses.' Guardian 4.11.13
Why the 1% should pay tax at 80% 'The Reagan-Thatcher revolution changed society's beliefs about taxes. If we want economic growth shared fairly, we must rethink.' Guardian 24.10.13
The Green Party takes on the banks 'The Green Party of England and Wales made history by joining the United States Green Party in calling for an end to the private creation of money by banks.' Compass 2.10.13
'The City of London is the government' - Rowan Bosworth-Davies, former Scotland Yard detective 'The government is absolutely terrified of facing up to the bankers.' Bristol Broadband Co-operative 22.6.13
Dirk Bezemer on Positive Money: A Response 'We're fans of Prof Dirk Bezemer’s work. Dirk is one of  the few economists who understand money and bothers to consider the role that banks have in creating money. But his interview with Icelandic journalist Egil Helgason, following another interview has a number of fundamental inaccuracies…' Positive Money 17.04.13
97% Owned '97% Owned is a documentary that reveals how money is at the root of our current social and economic crisis. Featuring frank interviews and commentary from economists, campaigners and former bankers, it exposes the privatised, debt-based monetary system that gives banks the power to create money, shape the economy, cause crises and push house prices out of reach.' Queuepolitely 5.12
Money has been privatised by stealth 'The greatest privatisation in history has gone unnoticed. It's time to take from the banks the power to produce money.' Guardian 15.11.11

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