Monday, August 11, 2014

Elena Holodny — This Stanford Economist Has Obama's Attention — And It's Causing A Wall Street Freak-Out

President Obama "invited Admati and five other economists to a private lunch to discuss their ideas." One of those other five economists was the notorious anti-Wall Streeter Paul Krugman. 
In "The Banker's New Clothes: What's Wrong With Banking and What to Do About It," Admati argues (along with coauthor Martin Hellwig) that because banks don't use their own money, they take greater risks and, as a result, "they keep crashing the economy." 
Her solution is to "make banks behave more like other companies by forcing them to reduce sharply their reliance on borrowed money," according to The Times article. She suggests that "large banks should be required to raise at least 30 percent of their funding in the form of equity" — which is "six times more than the current average for the largest American banks."
Business Insider
This Stanford Economist Has Obama's Attention — And It's Causing A Wall Street Freak-Out
Elena Holodny

3 comments:

Roger Erickson said...

That sounds nearly as screwy as going back to a gold std.

Except she only wants to go "30%" back to a gold std.

You can't make this stuff up.

Why not just legalize a 9% solution? Then no one at all would have to THINK at all.

Mosler nailed it years ago. The liability side of fiat currency banking is NOT the place to enforce market discipline!

"Market discipline" only works if there is adequate "market regulation."

[In a fiat currency system, the liability side of fiat currency banking IS the freaking public policy apparatus. Why is that so difficult to grasp?]

Pity Bill Black and Warren Mosler won't form a tag-team in the policy-wrestling arena.


Roger Erickson said...

Anat Admati is missing the fiat currency system for the fiat currency accounting agents.

Tom Hickey said...

Making banking more expensive will just drive shadow banking, which more fragile than regulated banking.