by Marshall Auerback, New Economic Perspectives
As a Canadian, perhaps I should feel a surge of patriotic pride now that Mark Carney has been designated the new head of the Bank of England – quite a step up for the current governor of the Bank of Canada. There is no question that Mr. Carney is a market-savvy guy (he did, after all, work for the vampire squid), and his experiences as Chairman on the Financial Stability Board (FSB) suggests that he is sensitive to the ongoing systemic risks present in our increasingly complex global banking system.
Your Perception Is Your Reality
by John Mauldin, Mauldin Economics
There’s a very interesting article in The Atlantic this week, called “How Partisans Fool Themselves Into Believing Their Own Spin.” While the author, Alesh Houdek, engages in some spin of his own, he makes some very good points that we should keep in mind not only as we look at the potential effects of a tax increase but as we tackle new ideas and accompanying “facts” in general. And he has pointed us to a very interesting study, or at least it’s interesting for those of us who are fascinated by behavioral psychology and behavioral economics:
We weigh facts and lines of reasoning far more strongly when they favor our own side, and we minimize the importance and validity of the opposition's arguments. That may be appropriate behavior in a formal debate, or when we're trying to sway the opinion of a third party. But to the extent that we internalize these tendencies, they injure our ability to think and see clearly. And if we bring them into the sort of open and honest one-on-one political debates that we'd like to think Americans have with each other, we strain our own credibility and undermine the possibility of reaching an understanding.
A defense attorney presents the best case for his client's innocence in court, but he's realistic with himself about what he believes the truth of the matter is. Too often in political arguments we have drunk our own Kool-Aid.
LONDON – It is generally agreed that the crisis of 2008-2009 was caused by excessive bank lending, and that the failure to recover adequately from it stems from banks’ refusal to lend, owing to their “broken” balance sheets.
A typical story, much favored by followers of Friedrich von Hayek and the Austrian School of economics, goes like this:
In the run up to the crisis, banks lent more money to borrowers than savers would have been prepared to lend otherwise, thanks to excessively cheap money provided by central banks, particularly the United States Federal Reserve. Commercial banks, flush with central banks’ money, advanced credit for many unsound investment projects, with the explosion of financial innovation (particularly of derivative instruments) fueling the lending frenzy.
Written by Derryl Hermanutz
We hear that China's new "conservative" leaders have all read Alexis de Tocqueville's 1856 book, The Old Regime and the Revolution, and are recommending it to their friends. Western pundits opine that China's government feels that maintaining legitimacy with the governed depends on keeping the Chinese economy humming along. The government fears "revolutionary" democratic fervor, and seeks to placate the people by creating macroeconomic conditions that foster opportunity and widely distributed enhancement of the people's standard of living. If, as proved to be the case in post-Revolutionary France, it becomes clear that the people actually value state fostered wealth and security over political liberty, then this strategy will work if it can be executed successfully.
Staggering Levels of Fraud For Years On End …
The shadow banking system is bigger now than when the financial crisis started.
As Max Keiser explains, massive fraud has continuously taken place over many years … as banks shift their liabilities into the shadow banking system during audit time – with the help of accounting firms and the government – and then bring them back onto the books as soon as the auditor leaves: