minsky’s money manager capitalism and the … · money manager capitalism ... business loans,...
TRANSCRIPT
MINSKY’SMONEYMANAGERCAPITALISM
ANDTHEGLOBALFINANCIALCRISIS
L.RANDALLWRAYUniversityofMissouri‐KansasCity,UMKC
hJp://neweconomicperspecQves.blogspot.com/
*IthankYevaNersisyanfortheresearchassistanceunderlyingthisanalysis
Globalcrisis:LessonsfromKeynesandMinsky
• Crisisrepresents– anins9tu9onalfailure(banksmutatedfromu9li9estocasinos);
– anintellectualfailure(dangerousviewofefficacyofmkts);
– andmoralfailure(systembuiltonmoneyvalues)
• Ins9nc9veandquickreturntoKeynes(themaster—Skidelsky)
• WithMinsky’sinsightsonthetransforma9onthatledtothecrisis
IstheFinancialCrisisover?• No.Hardlybegun:
– Residen9alrealestate,commercialrealestate,shoppingmalldebt,homeequityloans,creditcarddebt,studentloans,autorelateddebt,businessloans,Eurodebt,developingcountrydebt,stateandlocalgovernmentdebt,pensionfunds,insurancecompanies,creditdefaultswaps,CDOs,CDO‐squared,CDO‐cubed,SPVs,SIVs,LifeinsuranceseVlements,peasantinsurance,REITs,junkbonds,interestrateswaps,financializedhealthcare…
• Thisisround3ofa9roundbout:– Round1=liquiditycrisisofshadowbanks– Round2=waveofinsolvenciesofhomemortgagespecialists– Round3=bail‐outsandcookingthebookstopaybonuses– Round4=anotherroundofdefaultsforceslossrecogni9on– Round5=knock‐outpunchwithafullscaleMinsky‐Fisherdebtdefla9ondynamic
AMinskyMomentoraMinskyHalf‐Century?
• StagesApproach– Commercialcapitalism
– Financecapitalism
– Paternalis9c(Managerial‐WelfareState)capitalism– MoneyManagercapitalism(financializa9on,ownershipsociety,neoliberalism,neoconserva9vism,shadowbanking)
• Stabilitybredinstability• Accumula9onoffinancialassets/liabili9es
• Globaliza9on• Securi9za9on• Self‐supervision
FourRecentTrends
• RiseofManagedMoney(declineofbanking)• InvestmentBanksgoPublic
• Regula9onandsupervisionreplacedbyself‐supervision
• Transforma9onofbusiness“environment”
1.RiseofManagedMoney
• Twoaspectsofnote:– Volumesofassetsandliabili9es(“financializa9on”increasesfinance’sshare)
– Compe99onwithbanks(“shadowbanking”innova9ons,leverage,andderegula9on)
Households and nonprofit
Noncorporate and farm
Nonfinancial nonfarm corporate
Private finance
GSE
Government
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5 19
16
1918
19
20
1922
19
24
1926
19
28
1930
19
32
1934
19
36
1938
19
40
1942
19
44
1946
19
48
1950
19
52
1954
19
56
1958
19
60
1962
19
64
1966
19
68
1970
19
72
1974
19
76
1978
19
80
1982
19
84
1986
19
88
1990
19
92
1994
19
96
1998
20
00
2002
20
04
2006
20
08
Total Financial Liabilities Relative to GDP
Sources: Historical Statistics of the United States: Millennium Edition (Tables Cj870-889, Ca9-19, Ce42-68, Cj787-796, Cj748-750, Cj389-397, Cj437-447, and Cj362-374), Historical Statistics of the United States: Colonial Times to 1970 (Series X 689-697), NIPA, Flow of Funds (from 1945). Note: The government sector excludes all financial activities of the government (retirement funds, GNMA, etc.). GSE sector includes government-sponsored enterprises and agency- and GSE-backed mortgage pools (includes, among others, GNMA and FHA pools). "Private finance" excludes the GSE sector and monetary authorities (which are both part of the financial sector in the Flow of Funds accounts). Before 1945, data for financial institutions is computed from data of the Census Bureau by taking all the liabilities (excluding equity) of commercial banks, credit unions, savings institutions, life insurance stock companies, and property and life insurance companies, and by removing private banks notes, all deposits, and life insurance reserves. From 1945, the total financial liabilities of the financial sector excludes, net interbank liabilities of commercial banks, liabilities of monetary authorities, private and public pension fund reserves, money market mutual funds shares, mutual funds shares and the items previously cited. The liabilities of monetary authorities are not included anywhere. Data for the households and noncorporate sectors is deduced from Census Bureau data about net increase in liabilities and by computing backward from the 1945 level.
Financializa9on
• Layering,leveraging• Priorcommitmentoffutureflows
• Cannotbeservicedoutofincomeflows:Ponzi
• Requirescapitalgains:pricesmustalwaysrise
2.InvestmentBanksgoPublic• 1929Alloveragain:InvestmentTrustSubsidiariesofWallStpartnerships– Promotedmassiveleverageand“pumpanddump”specula9vefever
• Shijtotradingratherthanplacements– Topmanagementincen9vestomanipulatesharepricesandtradeoninsideinfo
• Researcharms,ra9ngsagenciesbecomeliVlemorethanmarke9ngdivisions– Tradermentalitydominates:Vendibilityratherthanserviceability
3.Deregula9on,Desupervision,Selfregula9on
• Movingassetsandliabili9esoffbalancesheet,increasingleverage
• Riskierassets,mismatchedmaturi9es
• Securi9esandotherderiva9ves;“Moderniza9on”removingconstraintsonpensions,endingGlassSteagall
• Risk‐basedcapitalreqmts,internalmodels,externalra9ngsagencies
• Transforma9oncompletedbyhandingbankcharterstothetworemaininginvestmentbanks
4.Changingbusiness“environment”
• Lehman’s“ac9onable”and“materiallymisleading”prac9cesapprovedbyMngmtandErnst&Young.Why?– Nootherwaytowinbusiness– Nofearofprosecu9on
• Tradermentalitytriumphs
• GoldmanandGreekdebt• Magnetar,CDOsandCDSs
• ControlFraudasnormalbusinessprac9ce
– S&Ls
Clarifica9on:Fraudisnotthecauseofthecrisis
• Longtermtransforma9onoffinancialsystem– Normalinnova9onsplusselfregula9on,laxity
• Longtermgrowthofmanagedmoney– Absenceofdebtdefla9on;promo9onofsaving
• Longtermstagna9onofrealwage– Democra9za9onofcredit
• Chronicfiscaldrag,worsenedbytradebalance– Threebalances;privatesectordeficits
PolicyResponse
• Policyac9onsaredirectedatsavingthesystem,notreformingit
• Mergersandacquisi9onsagainstrules;Toobigtofailins9tu9onsevenbiggertodaythantheywerebeforethecrisis
• Nocriminalprosecu9onsofthoseresponsibleforthecurrentcrisis
• RelianceonWallStreettoreformitself,beliefthatgov’tonlyneedstogettheincen9vesrightformarketdisciplinetowork
AMajorObstacle:DeficitHysteria
• Always2waystocreatedeficits:theUglywayandtheGoodWay:ChinavsUS&Japan
• DeficitFearsnotapplicabletosovereignna9onaldebt
• Spendsbycredi9ngaccts,taxesbydebi9ng• Deficits=netcreditstodeposits&reserves,andcreateincomeandnetfinancialwealthofnongovtsector
-15
-10
-5
0
5
10
15
20
25
Q1
2005
Q2
2005
Q3
2005
Q4
2005
Q1
2006
Q2
2006
Q3
2006
Q4
2006
Q1
2007
Q2
2007
Q3
2007
Q4
2007
Q1
2008
Q2
2008
Q3
2008
Q4
2008
Q1
2009
Q2
2009
Q3
2009
Q4
2009
%
Federal Government Tax Receipts, Consumption Expenditures and Transfer Payments (Growth Rate Relative to the Same Quarter of the Previous Year)
Tax Receipts
Consumption Expenditures
Transfer Payments
Source: Bureau of Economic Analysis and Authors' Calculations; Tax Receipts Data Unavailable for 2009 Q4
Minsky’spoliciestopromotestability• Highconsump9on,highemployment
– Greaterequality,relyonincome,notdebt
• Favorsmalltomediumsizebanks;CDBs,notpredatorylending;debtrelief
• Don’twasteacrisis:De‐financialize;downsize.Resolve– Definancializehealthcare,re9rement,educa9on
• Enhancedoversight;strengthenedregula9on– Nothingoff‐balancesheet
• Ins9tu9onsandprac9cestofavorstability– Automa9cstabilizers:countercyclicalbudget
– Ins9tu9onalCircuitbreakers• No“final”solu9ontofundamentalflawofcapitalism