econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 03 January 2016

Do Firms Maximize Profits?

by Dirk Ehnts, Econoblog101

The Bank of England's report on the failure of HBOS has been published last month.

It is quite revealing:

The FCA/PRA Report documents particular, and dominating, cases of inappropriate risk taking, in the management of credit risk in the Corporate Division, the expansion overseas without regard to the risks involved, and funding the assets of the bank. The strategy of HBOS put the growth of the bank above these considerations until it was too late and impossible to change course. The last point here is important. The management of a firm is not required to have perfect foresight. The criticism in the Report is not that management failed to predict that there would be a global financial crisis. Rather, they should have put in place strategies that could in combination accommodate and respond to, in a timely way, changes in external circumstances. With these strategies firms can for example raise new capital or adjust their funding with the necessary confidence of success. HBOS lacked these strategies.

This goes against the usual microeconomics where it is assumed that firms maximize profits. The textbooks need to be rewritten. While HBOS is an outlier, nevertheless it is too-important-to-ignore. It is when things go wrong that we need economists to explain what happened. Commenting the failure of HBOS by saying that on average firm profits are zero and that profit maximization always maximizes welfare is just plain wrong.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Opinion Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted. You can also comment using Facebook directly using he comment block below.




Econintersect Opinion


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
The Job Guarantee, Wage-Price Inflation And Alternative Solutions: Part 1
The Job Guarantee, Wage-Price Inflation And Alternative Solutions: Part 2
News Blog
17 March 2017: ECRI's WLI Growth Index Shows Continued Moderate Slowing Of Rate of Growth
Durable Goods New Orders Improved in February 2017
Why NASA Won't Send Humans To Venus
Rail Week Ending 18 March 2017: Short Term Rate of Growth Slowing
How Taxes And Transfers Affect The Work Incentives Of People With Low And Moderate Income
How Tourism Affects China's Current Account Surplus
Infographic Of The Day: The Habits Of Highly Successful Entrepreneurs
To Where The Maple Syrup Flows
The U.S. Has The Most Expensive Healthcare System In The World
Five Maps That Will Change How You See The World
What We Read Today 16 March 2017 - Special Public Edition
Hate Groups In The U.S. Are Flourishing
What We Read Today 23 March 2017
Investing Blog
Early Headlines: Asia Stocks Mixed, Dollar, Oil Up, Gold Down, Health Care Vote Today, Calif. Solar, Russia And Poison, Mumbai Bridge, Sanctions Cause Suffering In N. Korea, And More
Tesla Is Playing The Long Game
Opinion Blog
Time To Stop Rewarding Economists For Bad Behaviour
The American Dream: An Endangered Ethos
Precious Metals Blog
These Gold Stocks Will Produce Much Bigger Gains Than Gold Itself
Live Markets
24Mar2017 Pre-Market Commentary: Looks Like Markets Will Flatline
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government































 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved