By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Cross posted from New Economic Perspectives.
“Pink slime” just had its fifteen minutes of fame. BPI, the producer of pink slime, calls it “Lean Finely Textured Beef.” BPI’s slogan is “expect a higher standard.” Pink slime starts with fatty tissues that are inherently more likely to be repositories of salmonella and e coli infections. The tissues are shredded and rendered and most of the fat drained off. The pink slime, however, is still more likely to be infected after this processing and that makes it dangerous and can make it smell spoiled. BPI’s “innovation” was to gas the pink slime in Mr. Clean (ammonia) to try to kill bacteria and reduce the stink. The resultant pink slime is then frozen into bricks and shipped in bulk.
Pink slime was originally limited to dog food, but it has secretly been fed to Americans for a decade. Major hamburger chains, grocery stores, and school lunch programs added it to make up 15% of our burgers. The government didn’t require disclosure of pink slime or ammonia. Tests have established that pink slime remains more likely to harbor dangerous bacteria and that the only way to reduce that problem is to add so much Mr. Clean that the pink slime stinks and tastes awful. Because BPI could not sell the product if it continued to stink and taste awful they reduced the amount of Mr. Clean they used in processing and the risk of the pink slime harboring dangerous bacteria rose.
The New York Times revealed the pink slime scandal in a story that ran on December 31, 2009. Unfortunately, it buried the lead. The story broke the news that Gerald Zirnstein, a government microbiologist, had dubbed the product “pink slime” in 2002, but it did so around the 25th paragraph and the story did not generate a demand for reform.
A few weeks ago, Kit Foshee, a former BPI employee fired for blowing the whistle on pink slime, helped make the secret adulteration of hamburgers with pink slime a scandal. Once the public focused on pink slime they decided that they did indeed “expect a higher standard” for their burgers and BPI lost so much business that it closed three of its four plants producing pink slime.
The infected, odiferous, and bad tasting pink slime (aka, the “higher standard”) secretly added to our burgers for over a decade would be embarrassing to any system that pretends to the label “free enterprise,” but it has special resonance amongst economists. Adam Smith’s most famous saying, which captures his central vision of markets, is a seemingly paradoxical tale about butchers. He wrote that we could rely on the butcher providing us with wholesome meat not because of his altruism, but because of his far more reliable devotion to self-interest. Our butcher may not care about us, but he cares about whether he gets our business. This causes him to act reliably as if he cared for our well-being. He knows that if he sells us unfit meat we will cease buying meat from him and his business will fail. Pink slime is inconceivable in Adam Smith’s ode to the self-interested butcher.
Relying on corporate butchers’ self-interest (greed) has been proven to be unreliable by the pink slime deception. Greedy corporate butchers taught that they should not really care about the customer’s well-being realized that they could maximize their self-interest by selling us pink slime as long as they could do so secretly.
Modern finance theory extended Smith’s paradoxical tale about the butcher to the financial world. Theorists assured us that financial markets were, absent regulation, reliably “efficient” because they were “self-correcting.” Any pricing error created a profit opportunity for trades and those trades removed the pricing error. “Accounting control fraud” is impossible because it would create a consistent pricing bias by overstating the value of the securities issued by the frauds. The markets exclude fraud so effectively that “a rule against fraud is not an essential or … an important ingredient of securities markets” (Easterbrook & Fischel 1991).
“Private market discipline” adds to the impossibility of accounting control fraud. Creditors suffer severe losses and fail if they make imprudent loans. They have an incentive to develop the experience, expertise, and systems to ensure that they underwrite superbly prior to making large, risky loans. A lender’s central expertise should be underwriting and an investment bank’s central expertise should be “due diligence.” The biggest banks and investment banks, which pay starting compensation of well over $100,000 should have incomparable skills in conducting, respectively, underwriting and due diligence.
It is, therefore, inconceivable under modern financial and economic theory that the financial crisis we continue to suffer from could occur. As with the perversion of Adam Smith’s reliable butcher into a corporate butcher specializing in aiding the secret adulteration of our burgers with pink slime, however, the CEOs of our leading financial firms have adulterated our financial system with green slime (the color of our money.) Pink slime was limited to 15% of our burgers and it generally does not makes purchasers sick. Green slime became one-third of the mortgages made in 2006 and close to 100% of our collateralized debt obligations (CDOs). Green slime typically caused severe financial losses. The financial CEOs did not add Mr. Clean to their green slime to reduce its endemic infestation by pathogens. They did, however, tell us to “expect a higher standard.” Indeed, they ensured that the rating agencies would rate the green slime “AAA” and the outside auditors would give clean financial opinions to financial statements claiming that green slime was “prime” and free of adulteration. The meat butchers and the financial butchers called their slimed products “prime” – prime meat and prime loans.
Green slime drove the current crisis, just as it did the Enron era frauds and the second phase of the S&L debacle. Studies of “liar’s” loans have shown their fraud incidence to be 90% — they are virtually all fraudulent. The Orwellian term that BPI used to disguise the nature of pink slime was “Lean Finely Textured Beef.” The Orwellian term the industry favored to disguise the nature of green slime was “Alt-A.” “A” signifies that the mortgage is of the lowest credit risk – it is “prime.” “Alt” is short for “alternative” and, falsely, implies that the loans were underwritten by an alternative process. Failing to underwrite, e.g., by verifying the borrower’s income, is not an “alternative” means of underwriting. Honest mortgage lenders do not make liar’s loans (the term that the lenders used in private to describe their green slime) because they create severe “adverse selection” and encourage endemic fraud. Both results mean that the expected value of making such loans is negative. In plain English, that means that the lender will suffer catastrophic losses and fail.
Liar’s loans became the most common form of non-prime mortgage loans. Many commentators make the fundamental mistake of assuming that liar’s loans and subprime loans are mutually exclusive. “Subprime” refers to borrowers known to have serious credit defects. “Liar’s loans” refers to the lender’s failure to verify essential information such as the borrower’s income. Mortgage lenders created the most toxic form of green slime by making liar’s loans to subprime borrowers. By 2006, roughly one-half of the loans called “subprime” by the lenders were also liar’s loans. That means that by 2006 roughly one-third of all mortgage loans made that year were liar’s loans. Liar’s loans grew massively between 2003 and 2006. The growth rate appears in that period appears to be over 500%. Liar’s loans hyper-inflated the housing bubble.
The rapid growth in liar’s loans continued after the mortgage industry’s own anti-fraud experts and federal and state regulators warned that loans were endemically fraudulent – green slime. Lenders and their agents were responsible for putting the lies in liar’s loans by creating perverse compensation systems and encouraging liar’s loans despite the fact that they knew such policies were the perfect growth medium for green slime. (Criminologists call environments that create the perverse incentives for crime “criminogenic” – a direct steal from microbiology’s concept of a “pathogenic” environment.)
Liar’s loans constitute the ideal “natural experiment” that allows us to test why lenders made millions of liar’s loans and why the largest commercial and investment banks purchased the green slime to create the even slimier CDOs. No government official, law, or rule required any mortgage lender to make liar’s loans or any entity (and that includes Fannie and Freddie) to purchase liar’s loans or CDOs. To the contrary, federal regulators – even under the Bush administration – warned against making liar’s loans and Fannie and Freddie did not get credit toward their “affordable housing” goals for making liar’s loans. Lenders made, and the largest investment banks and Fannie and Freddie purchased, vastly more liar’s loans after being warned that such loans were overwhelmingly fraudulent and likely to cause enormous losses.
Why did lenders make, and investment banks purchase, over a trillion dollars in liar’s loans and sell roughly a trillion dollars in CDOs in which the “underlying” was overwhelmingly liar’s loans? Contrary to many commentators’ claims, it was the norm for sales of green slime to be made “with recourse” so lenders typically had enormous “skin in the game” even if they sold their liar’s loans to the secondary market. Indeed, the sales of liar’s loans inherently required that the fraudulent lenders engage in further frauds when they made false “reps and warranties” as to the quality of the green slime they were selling. Making, selling (with recourse), and purchasing liar’s loans and CDOs was certain to produce massive losses.
All of modern finance theory predicted that green slime would immediately be driven out of the marketplace. Instead, green slime spread rapidly for many years and became dominant in some massive financial sectors (CDOs), common in one of the world’s largest financial spheres (U.S. residential housing), and the norm at most of the world’s most prestigious commercial and investment banks. Three of America’s five largest investment banks were destroyed by their embrace of green slime. Green slime grew so rapidly that it caused financial bubbles in several nations to hyper-inflate.
Modern finance theory was falsified by research findings in criminology two decades before modern finance theory was created. Control frauds cause greater financial losses than all other forms of property crime – combined. The “weapon of choice” for financial control frauds is accounting. The optimal “recipe” for a lender or purchaser of loans engaged in accounting control fraud calls for the creation of vast amounts of green slime. The recipe has four ingredients.
- Grow extremely rapidly by
- Making or purchasing crappy loans or derivatives (green slime) at a premium yield while
- Employing extreme leverage and
- Providing only trivial allowances for the inevitable eventual losses
The title of George Akerlof and Paul Romer’s classic 1993 article explaining why green slime can become epidemic explains why it is rational for CEOs to cause “their” firms to make and purchase green slime (“Looting: the Economic Underworld of Bankruptcy for Profit”). Akerlof & Romer emphasized that the fraud recipe produces a “sure thing.” Indeed, it produces three sure things. It guarantees that the firm that follows the recipe will report enormous (albeit fictional) income in the near term. (If many firms in the same industry follow the same recipe and use the same ingredients they will hyper-inflate financial bubbles. This can greatly extend the life of the fraud because losses on the bad loans will be hidden by refinancing. The saying in the trade is that “a rolling loan gathers no loss.”) Modern executive compensation, which the CEO typically determines, guarantees that the record reported income will promptly make the CEO wealthy. The fraud recipe also guarantees that the firms will suffer massive losses, particularly if the frauds hyper-inflate a financial bubble. As Akerlof and Romer’s title makes clear, the firm fails (“bankruptcy”), but the CEO looting the firm walks away with a huge “profit.”
It should, of course, be impossible for lenders making liar’s loans to sell such endemically fraudulent loans to the world’s (allegedly) most sophisticated sources of private market discipline. In fact, roughly 90% of the endemically fraudulent liar’s loans were sold to the world’s most prestigious commercial and investment banks and, eventually, Fannie and Freddie. Those commercial and investment banks pooled the green slime mortgage loans to create the ultimate in cynicism and fraud – the greater green slime known as CDOs. The underlying instruments for CDOs were commonly liar’s loans. The “AAA” tranche of the typical CDO represented 80% of the overall CDO. Think of what that means. The investment banks took loans they knew to be endemically fraudulent – the slimiest of green slime available – and called the vast bulk of the slime “AAA” – the credit rating that is supposed to be granted only to the investments posing the absolutely lowest degree of credit risk. Calling green slime “AAA” is the ultimate in financial chutzpah.
The key function of regulators in food or finance is to prevent the spread of pink and green slime. If cheaters gain a competitive advantage over honest firms it creates a “Gresham’s” dynamic – bad ethics drives good ethics out of the markets. Market forces become perverse. The Federal Home Loan Bank of San Francisco understood this in 1990-1991 when we used normal supervisory powers to put an end to the making of liar’s loans, which were becoming common among Southern California savings and loan. We were veterans of the regulatory struggle to identify, close, and prosecute the accounting control frauds that drove the second phase of the S&L debacle so we recognized that liar’s loans were certain to be open invitations to fraud and disastrous. Unfortunately, the fraudulent lenders that made liar’s loans moved overwhelmingly to ensure that they were not subject to federal regulation, e.g., by becoming mortgage banks.
Congress responded to this regulatory black hole by passing the Home Ownership and Equity Protection Act of 1994 (HOEPA). HOEPA gave the Federal Reserve the exclusive authority to ban any unsafe mortgage lending practice by any lender, even those not normally subject to federal banking regulation. Sheila Bair, originally a senior Treasury official appointed by President Bush, worked with Federal Reserve Board Governor Gramlich to urge the Fed to ban liar’s loans. Liberal consumer groups, including ACORN, and state regulators asked the Fed to use its HOEPA authority to crack down on liar’s loans.
Fed Chairman Alan Greenspan and his successor Ben Bernanke, however, were devout believers in the dogma that held that securities markets automatically excluded fraud. They refused to ban liar’s loans. (Bernanke, under intense Congressional pressure, finally adopted a rule on July 14, 2008, under HOEPA banning liar’s loans. Even then, he delayed the effective date of the rule until 2009.) Greenspan and Bernanke were so gripped by anti-regulatory dogma that they refused to even send examiners into bank holding company affiliates making liar’s loans to get the facts.
The Fed had at all relevant times during the crisis complete statutory authority under HOEPA to ban green slime. Its leaders’ refusal to do so was what allowed fraudulent loans to become endemic and drive the crisis. The nation and much of the globe continue to pay a terrible price for Greenspan and Bernanke’s anti-regulatory dogma, which ascribed miraculous abilities to markets to eliminate green slime – abilities that had no basis in reality. The markets did the opposite, massively expanding the origination and sale of green slime. Adam Smith’s reliable butcher had become a mass purveyor of green slime. The financial markets’ embrace of green slime was so complete that they collapsed and could only be rescued by extraordinary governmental aid. Green slime is the great killer of jobs and the mass destroyer of wealth, particularly working class wealth. The recent passage of the fraud-friendly JOBS Act will produce increased green slime. The Bush and Obama administrations’ failure to hold the elite CEOs who led the massive control frauds that spread the green slime accountable for their crimes is as pusillanimous and reprehensible as it is dangerous. In the financial sphere, our top priority should be ensuring that we end the frauds that produce the green slime that causes our recurrent, intensifying financial crises.
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Excellent summary of how we got to where we are at. Of course many pension funds took the AAA bait. They need to start fighting back. I like that the Chicago police dept is taking the lead here.. http://www.nakedcapitalism.com/2012/04/have-four-pension-funds-blown-up-the-8-5-billion-bank-of-america-settlement.html
As a corollary, bailing out the banks with taxpayer funds has caused a stock market bubble which will eventually further degrade these pensions when that bubble re-adjusts to reality..
What about the SEC “going after” Mudd and Raines?
from Wikipedia
Mudd collected more than $80 million in his time at Fannie Mae.
Mudd for 2-1/2 years to December, 2011,[12] was the CEO of Fortress, a hedge fund in New York City that has among other investments bought tax liens on delinquent property taxes from local governments under 17 different corporate names.
At the time it was reported he had received a salary of $200,000 and a bonus of $3 million in 2010 and been given restricted stock valued at $24 million when he joined the company
By going after Raines, Mudd, Tom Donilon and others will it be clear that they all are in the same bed together?
Is this a civil flogging with potential criminal implications?
Donilon, for example was counsel for Citigroup/Goldman and was a lobbyist for Fannie, and the dude becomes Obama’s National Security Advisor. Yes, we preyed on families. We stole from them. We drew them around the bend because it was so lucrative we got rich, we did it all baby! Fire up the BMW I’m going paddling on the Potomac River! The NYT times says that we stole from poor people, and with the Banksters we did indeed!!!
great read
but i’ve lost my appetite for breakfast
Odrone is going to obliterate SS and Medicare once and for all.
http://www.liberty1.org/virtue.htm
“Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other.”
John Adams
“Bad men cannot make good citizens. It is when a people forget God that tyrants forge their chains. A vitiated state of morals, a corrupted public conscience, is incompatible with freedom. No free government, or the blessings of liberty, can be preserved to any people but by a firm adherence to justice, moderation, temperance, frugality, and virtue; and by a frequent recurrence to fundamental principles.”
Patrick Henry
“[N]either the wisest constitution nor the wisest laws will secure the liberty and happiness of a people whose manners are universally corrupt. He therefore is the truest friend of the liberty of his country who tries most to promote its virtue, and who, so far as his power and influence extend, will not suffer a man to be chosen onto any office of power and trust who is not a wise and virtuous man.”
Samuel Adams
“In theory there is no difference between theory and practice, but in practice, there is”
Yogi Berra (also attributed to Albert Einstein)
Thank you for laying to rest the myth of market discipline. Market discipline is easily subverted by misaligned incentives, lack of regulation and enforcement. To use your metaphor, originators didn’t care what was in the green slime because it could be immediately sold on the secondary market and no one was enforcing regulations. Since there was little to no risk, the market had no discipline and willfully self indulged at the expense of its customers. An instructive case study of our collective financial ruin finds regulation and enforcement must have a role in healthy markets…but in teachings at HBS and Wharton?
The only market “discipline” in our society is when investment bankers, high on coke and Dom P.,get tied up and spanked by their S&M hookers.
Re: Pink Slime
Thanks for the link to the NYT article on ‘the Slime,’ with the actual story about ‘too much ammonia.’ It IS slime, not because of appearance, but because it really doesn’t belong in the human food chain, even if MOST eaters don’t get sick. One person w/ e coli for some firm’s bottom line is too many.
just think of the injustice of blaming lettuce for all our e-coli incidents.
I worked at a meat packing plant in Amarillo as a teenager in the ’70’s. Whether it is about meat or money, the American people couldn’t handle the truth then, can’t handle the truth now. The meat ain’t the only thing spoiled rotten.
Alright, the flaw is probably a characteristic common to
all nations.
éirígí
No you are right. Americans embrace delusion, and for many years have avoided the consequences of denying facts on the ground, aka reality. No longer..the chickens have come home, and boy, will we be very sad.
Green Slime? In this establishment? I’m shocked.
Thankfully, modern finance theory has been utterly discredited and US policymakers are diligently reforming the banking system, after fully prosecuting those parties that committed or suborned criminal fraud. Indeed, the US is on the threshold of implementing robust social democratic programs while cutting military, defense and homeland security expenditures by 90%. Democracy works in the land of the free!
It’s not the theory so much as the reality of markets. That is, the theory applies only to abstract, idealized markets. In a world where rents can be captured and costs offloaded to the public, we don’t have much theory. (well, other than basic game theory, that everyone acts in their own self-interest, enlightened or otherwise)
So, looking at theory from pretty mathematical models and trying to extrapolate to messy real world leads to econotheology at work, not economics.
Any one with functioning gray tissue between their ears should realize the fundamental ‘infections’ born by the ‘green slime’ will affect the housing industry for years to come, no matter how many HAMP or trillions thrown.
Virtually there is NO private mortgage market and NO securitization of MBSs! 70% of credit was created during the crisis which helped to blow the bubble but no more.
Everything Govts and Banksters are doing is to deny the harsh reality. There are NO solutions (permanent) when one refuses to recognize the problems in the first place!
Actually, Ben and Al are sort of proving correct. The market has actually imposed its discipline (to some extent) on the CDO’s. It has shunned them to the point of worthlessness. Of course, that still leaves the problem of those who were, essentially, defrauded. Then again, the market forces (Oh Adam, you were so prescient) have begun to work there too. How many of us would trust ANY rating from the three major rating agencies?
Granted, there are still some fools out there. They don’t realize that the entire system was at fault. They believe that the government has ‘fixed the problems.’ They will find out otherwise soon. Then we will have a similar problem to the 1930’s, when no layman would trust the stock markets–at all–for any reason–ever!
I would not buy a CDO. I would not get a mortgage in this market without a huge investment in diligence (ensure clear title, ensure the lender can not play financial games with me, ensure that all documents were copied and notarized as it, etc.) That would make the purchase of a house much more costly (at least nominally), but that is the only way I would consider doing it. That cost (loss of my business and the business of like-minded people) is the cost that the financial firms and banks have borne.
Which firms would not suffer this loss? Those that behave honorably. If a local bank offered a mortgage, which is promised (in writing, of course) to keep, if the same bank demonstrated its trustworthiness to me, then I might be more willing to trust–but not at this moment.
From the post:
“Studies of “liar’s” loans have shown their fraud incidence to be 90% — they are virtually all fraudulent.”
Question: the fraud being mentioned here is what, exactly? In particular, is it the fraud the borrower perpetrated by signing documents that presumably contained reps & warranties concerning income and assets? or is it fraud committed by the lender in describing the terms of the loan to the borrowers? If it’s the former, does that not add fuel to the argument that this crisis is primarily a product of bad borrowers rather than bad banks?
Somewhere i got the impression that, in these “liar’s loans” the borrower didn’t have to make such “reps and warranties”, the so called NINJA loans, or in some cases the bank itself “padded” the docs – the bank knew they were lousy from the outset. It wasn’t the borrowers who lied …
Rcoutme wrote: “I would not get a mortgage in this market without a huge investment in diligence
Even with due diligence, you still must sign the standard contract that is heavily lopsided in favor of the lender and a legal environment where only the lender’s rights are typically enforced. As far as the former, the contract is usually non-negotiable and grants the bank the majority of the rights.
I was reading a long loan contract not long ago, between a southern public utility and a lender, that my sister was working on (was bored waiting for her to return home, it was laying out). It allowed the lender to bring suit in any jurisdiction but limited the utility to bring suit only in the county of its legal location. I commented on that when she returned home. She said she hadn’t read it yet but that she wasn’t surprised, that loan contracts are always lopsided in favor of the lender.
Green Slime Drives our goverment (sing to the munchkins song):
Ding, dong, free markets shred;
Corruption and control fraud spreads.
Ding, dong, democracy is dead.
High ho’s and quid pro quos;
Sell us out for donors’ dough.
DC insider tips still grow!
We’ve gone where the plutos go
Behold their money flows!
Yo-ho! Deregulation works (not for us, so sing it):
Ding, dong, we’re overthrown, sing it high, sing it low
Yes we know democracy is dead!
(This is how government works. Unless voters can convince Congress to legislate public campaign financing, registration of lobbyists who call themselves consultants, to stop privatization for profit and stop the starvation of DC for profit). The only thing standing in the way of these reforms is anyone in Congress who votes this way is commiting Congressional career suicide by irate campaign donor, and wrecks their chances of making 3 – 10 times as much money after they finish serve voters to special interests from elected office. That would quite a bit of pressure from voters. Term limits, third parties, or voting out current congress would not reduce green slime.
“Unless voters can convince Congress …”
Nope, not this Congress nor any run by the duopoly – for the reasons you mention – BUT putting in folks, from a 3rd party NOT bought by corps – now that, my friend, is “a horse of a different color” ….
I rather like green
http://www.jillstein.org/
But obviously not as in “slime” – the color needs to be rehabilitated – MN made it the color of life – leave it us to slime even that …
Not to mention all the problems with the FDA and legal processes that deal with the intro to the essay on Green Slime.
Corporate Food Processors and companies like Monsanto regularly lobby State and Fed Gov’ts in order to make it illegal to label products with the actual content, for example, Byrne Dairy in PA and NY was sued for labeling their milk products “BGH Free” and had to discontinue the label. It seems that labeling milk and other milk products “BGH Free” inferred that there was a problem with Bovine Growth Hormones and the resultant sludge present in the milk from BGH-fed cows, thus slandering the producers and users of BGH.
Go figure.
I was just watching an Alyona Show youtube on the DOJ double standard for animal/environmental activists and corporations who commit the same “crimes.” (Have to put it in quotes because when a corporation does it, it is not a crime.) Tim DeChristopher gets two years in jail and a $10,000 fine, plus an unknown congressperson got him moved to a maximum security isolation unit (how can that happen?!), while two corporations who committed the same crimes get a wrist slap fine, no admission of criminality, and of course no jail time. She goes on from there to Monsanto’s unbelievable war on small farmers and concludes…
My chief ongoing criticism of Black is that he doesn’t really deal with the totality of kleptocracy. He lays out all this criminality in the system but stops short of characterizing the system itslef as criminal. He fails to see that the pervasiveness of the criminality is systemic and that it is very much a class thing, that our elites have put together and run a system whose goal is the total looting of the 99%. How do I know he doesn’t get this? Look at his second to the last sentence:
Their “failures” were not a bug, but a feature. Bush, Obama, Democrats, Republicans, our elites in general are not cowardly. They are part of the criminal enterprise. Black doesn’t get this. He hasn’t gotten it for a long time. In a lot of ways, Black is part of the problem. He lays out all this criminality and then goes gosh, if only the tsar, err President, knew or had the courage or something. I call this failing to complete the analysis and at some point we have to call into question the credibility of those, especially opinion leaders and makers, who refuse to do so. Saying that there is a lot of criminality and culpability out there doesn’t advance anything if one looks for reform coming from elites who have been bought and paid for by the criminals. When I read a Bill Black post, I always have the feeling that the first half, the description of the problem, is there and the second half, how to effect real solutions, is missing.
I don’t read that the way you do. He said the political and regulatory system failed. He says it continually. He could rail about it more, I suppose. He could plan the revolution, I suppose. But he has no particular expertise in political mobilization.
I’m not an economist of any sort, but based on what I’ve seen here, I think I see the problem with the incomplete criticisms coming out of UM-KC (et al) a little differently.
I think Black’s colleagues have been advancing their purportedly more accurate description of how the monetary-banking system works in an insufficiently critical manner, failing to point out the opportunities for looting that are *inherently* rife in the process of bank created money.
In the process, they have come perilously close to becoming advocates of the extant (kleptocratic) system as they advance the case for the accuracy of their description or “theory” of how the system works against the textbook explanation that they claim bears no resemblance to reality. They have also over-identified themselves with this “theory,” (which is effectively and inherently kleptocratic).
I see them as academics h*ll-bent on advancing their careers in the system, “permanent students” who are incensed that their “theory” gets little attention in the academy, but not primarily concerned with what it all means for the nation.
In short, I think Black has to be concerned with not treading too hard on the toes of the local academic cabal, which has usefully (and perhaps accidentally, only as of 2008) revealed the kleptocracy but which has been very slow to name it as such as they pimp their ideas about how to turn (their?) “modern monetary theory” to more public purposes all around town.
Personally, I think that’s a fool’s errand unless you remedy the kleptocracy first/ simultaneously, and so, I’m kind of not having it.
I think Black’s next task is to fundamentally modify the local cabal’s “theory,” as well as their stated policy agenda which is wholly inadequate to the point of being criminally incompetent.
But it’s probably true that they have more fan-boyz than Black, because unlike him– they’re giving away free stuff.
(Or, at least, they appear to be. I think we could debate the effectivity of some of their ideas there too).
In short, Black needs to turn the local academic cabal into criminologists instead of givers away of free stuff to their fan-boyz. The ambitious permanent students may not like this because the free stuff is a potentially useful distractant for wealthy kleptocrats, but wealthy kleptocrats have no use for criminologists.
Push come to shove, he can go over their heads and settle for convincing the Akerloffs and Romers that they currently have more to lose than gain by covering for the Obama Administration their spouses may have (ineffectively) served in.
If that doesn’t work, it’s over because no one else is still talking about this.
Thank you for your brutally honest perspective. Our frustration is becoming overwhelming as we lay witness to the further destruction of the lifeblood of our democracy. It is no comfort our society in decline breeds further acceleration of theft of common assets but this is surely the sad harbinger of its demise.