Eskozia eta independentzia (Nor da nor? Who is who?) (2)

Iruzkinak (1)

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  joseba says:

  2025/09/16 at 09:28

  The Bank of Goldman Sachs at Threadneedle Street
  September 2, 2021

  As I provided a detailed analysis of the National Accounts release yesterday, today, I am writing less via the blog and am shifting the Wednesday music feature to Thursday. That makes sense. Today, I am bemoaning the creation of the Bank of Goldman Sachs, formerly known as the Bank of England. Groupthink seems to plague this institution. And then, to restore equanimity, we have a music tribute to Lee ‘Scratch’ Perry who died in Jamaica this week.
  Bank of England Groupthink – redux
  In this blog post – Bank of England Groupthink exposed (January 8, 2015) – I discussed the response by the Bank of England to a report from the UK Treasury Select Committee (House of Commons) demanding the Bank act in a more transparent manner.
  The Select Committee Report (November 8, 2011) – Accountability of the Bank of England – noted that even with reforms to the committee structure within the decision-making bodies of the Bank:
  Groupthink will inevitably remain a potential risk … [and] … The avoidance of groupthink is the responsibility of the Bank of England …
  At the time, the Bank published the almost complete minutes of the meeting on January 7, 2015.
  The press release – Bank of England Court Minutes June 2007 – May 2009 (January 7, 2015) – is still available.
  However, quite amazingly, the Bank no longer provides this document in the usual place where the minutes are published.
  But, if you do some detective work (I am reading the Maigret books at present in my spare time!), then they are still available in non-consolidated form here:
  1. Court of Directors Minutes – 2008 (book 1) (pdf 1.9MB)
  2. Court of Directors Minutes – 2008 (book 1) (pdf 1.9MB)
  3. Court of Directors Minutes – 2008 (book 2) (pdf 1.7MB).
  4. Court of Directors Minutes – 2007 (PDF 1.2MB).
  So something odd is going on there with respect to these documents. The juiciest ones return an error when the link provided is clicked and the Bank has removed the consolidated document from the original (and easily accessible) location.
  What I learned from the Minutes at the time was that the former governor of the Bank, Mervyn King, did not fully inform the governing body of the bank of the impending collapse associated with the GFC, despite acknowledging that a liquidity crisis was approaching.
  As the crisis approached during 2007 and 2008, the Court, which is like a board of directors, were obsessed with discussions about open days, which mates they could install on the Monetary Policy Committee, and senior executive salaries and pensions for senior staff.
  Just after BNP Paribas revealed how exposed it was to the sub-prime market (the first real public disclosure that would then precipitate bank failures across the world), the Court was being assured that the system in place in Britain – the so-called ‘triple oversight’ model run by the Bank, the H.M. Treasury and the Financial Services Authority – was robust and ensured there would be no crisis.
  A few days later, they reconvened after Northern Rock signalled failure and the need for a massive bailout, and the Court voted to bailout their pals.
  The Minutes reveal that, even when specific questions were pursued by individual, non-executive directors of the Court, the executive members played a ‘straight bat’, deflecting the questions with a sort of unified resistance.
  The Chair of the Commons Select Committee said that:
  Even when questions were asked by individual non-executive directors, the executive usually presented a unified front to the Court, apparently rendering it of little or no use as a forum for creative discussion and constructive challenge
  The Minutes revealed that the Bank of England has become trapped in a destructive and dysfunctional Groupthink.
  In 1972, social psychologist Irving Janis identified group behaviour he termed ‘Groupthink’, which is a:
  … mode of thinking people engage in when they are deeply involved in a cohesive in-group, when the members striving for unanimity override their motivation to realistically appraise alternative courses of action (Janis, 1982: 9).
  [Reference: Janis, I.L. (1982) Groupthink: Psychological Studies of Policy Decisions and Fiascoes, Second Edition, New York, Houghton Mifflin].
  It “requires each member to avoid raising controversial issues” (Janis, 1982: 12).
  Groupthink drives a sort of ‘mob-rule’ that maintains discipline within the group or community of decision-makers.
  These communities develop a dominant culture, which provides its members, with a sense of belonging and joint purpose but also renders them oblivious and hostile to new and superior ways of thinking.
  the governance of the Bank of England clearly fell prey to the neo-liberal belief in the efficiency of private markets and the need for deregulation and freedom from oversight that emerged in the 1970s.
  The surge in Monetarist thought within macroeconomics in the 1970s, first within the academy, then in policy making and central banking domains, quickly morphed into an insular Groupthink, which trapped policy makers in the thrall of the self-regulating, free market myth.
  At the time, the Court was comprised of a number of people who the Bank itself eventually acknowledged “had standing conflicts of interest, and there was no provision for a non-executive chairman (to compensate for that”.
  You will get a better impression of the breathtaking Groupthink on display at the senior levels of the Bank of England by reading my discussion in the blog post cited above.
  One of the best ways an organisation can insulate itself from the tendency to get trapped in this sort of destructive group dynamic is to ensure there is diversity of background and opinion expressed at the decision-making levels.
  The Bank of England continues to ignore that well-founded advice.
  As informed readers will know, the Bank has appointed Huw Pill to replace Andy Haldane as its chief economist.
  Why is that a problem?
  For three reasons:
  1. His previous work indicates that he is another vanilla New Keynesian/Monetarist type and all that flows from that.
  2. He is another former Goldman Sachs employee (formerly Chief European Economist), who now occupies a senior position at the Bank – importing one ‘unified’ corporate culture into another institution.
  3. He is a white, anglo saxon male from an Oxford University background (one of them).
  The selection panel for the job had a former Goldman Sachs economist on it.
  Former Bank of England Monetary Policy Committee member David Blanchflower wrote an Op Ed in the Financial Times (October 13, 2019) – Bank of England is a captive of groupthink – which was consistent with my earlier writings on the topic.
  He wrote that:
  When I sat on the MPC, I was the only person who had not been to Oxbridge and did not live in London or South East England. I was a lone voice when I argued early on that the data showed that a recession was spreading to the UK from the US. I am concerned that the current MPC is similarly homogeneous and the tyranny of the consensus continues to reign.
  Former Governor Mark Carney came from Goldman.
  The current Deputy Governor of the Bank, who will be the boss for Pill came from Goldman.
  The British Chancellor worked for Goldman.
  The British Chancellor’s former boss at Goldman is now head of the BBC.
  The article in the Times (September 2, 2021) – Another Goldman veteran lands senior position at Bank of England – quoted a former Bank economist as saying:
  The Goldman Sachs takeover is beginning to seem like more than a coincidence. You don’t want any institution to be so strongly bound up with the central bank. It starts to look unfortunate.
  Another former Bank economist claimed, by way of deference to the decision, that Pill is “too opinionated and steeped in his own views” to be influenced by his Goldman background.
  But that is why I listed three reasons for the problematic nature of the appointment.
  We often read that a Report comes from an ‘independent’ think tank etc.
  This just means independent of ‘government’ in some way.
  But they never question the paradigmic diversity of a viewpoint.
  A New Keynesian working at Oxford is no less independent than a New Keynesian working for some charity or for Goldman.
  The paradigm unity is the problem when that is the only voice we hear.
  Anyway, it doesn’t look like the Bank of England has learned much over the last 20 years – Groupthink persists.
  MMTed update
  To give you an idea of what we are working on at present, at – MMTed – here is a short update.
  We are extremely limited by funding at present and we are working on ways to increase our resources.
  1. As part of our development we have invested in a new platform, which we will release later in 2021, once the trials tell us it will work properly and scale to demand without hassling the user (avoiding bottlenecks on videos etc).
  2. We will release a four-module course on monetary sovereignty around November 2021. This will be a short course that can be done in a day’s sitting although we will release it sequentially.
  3. We are rebuilding the MOOC that we ran in conjunction with the University of Newcastle through edX in March 2021 and we hope to launch that again in late 2021 or early 2022.
  4. We are filming the advanced course to complement the MOOC (which was an introductory course) and we hope to have that all produced by around March 2022.
  You can contribute in one of two ways:
  1. Direct to MMTed’s Bank Account – which is our preferred vehicle for receiving donations.
  Please write to me to request account details.
  2. Via PayPal – the PayPal donation button is available via the MMTed Home Page or via the – Donation button – on the right-hand menu of this page (below the calendar).
  Please help if you can.
  (…)
  Derek Henry
  September 3, 2021 at 19:00
  Geopolitical
  That is the way I look at it as America is no different to the Greeks, Romans and the British.
  What is the difference between the Goldman Sachs people and two thirds of the banks and financial entities under ECB supervision that hold 346 seats in its own advisory groups. Out of the 22 advisory groups” that the ECB maintains. They have “517 representatives from 144 different entities: either corporations, companies or associations, mainly trade associations. All groups but one are completely dominated by financial corporations, and the number of seats taken by the private financial sector is an astonishing 98 per cent (508 out of 517). There is no difference.
  What is the difference between that group of thieves and the imperial political structure (comprising British India, a quasi-federation of presidencies and provinces directly governed by the British Crown through the Viceroy and Governor-General of India, Princely States, governed by Indian rulers, under the suzerainty of The British Crown exercised through the Viceroy of India.
  Or the list of governors of Roman Britain from 43 to 409. As the unified province Britannia. What the Greeks did when they conquered places. I see no difference apart from the US are in charge today and this is how they do it.
  MMT is the antithesis to all of that.
  (…)
  oooooo
  The dying embers of New Keynesian reasoning
  (https://billmitchell.org/blog/?p=48192)
  August 31, 2021

  Lawrence Summers is a New Keynesian economist. That means something. While there are nuances that exist between members of that school of thought, mostly to do with policy sensitivities and speeds of adjustment, the New Keynesian paradigm has demonstrated clearly that it is incapable of capturing the macroeconomic dynamics in any consistent manner, despite it being the dominant approach in the profession. So, it is no wonder when Summers provides opinions the underlying logic he demonstrates is similarly flawed. Unfortunately, he keeps getting important platforms to express these opinions, which continues to blight the public policy debate. He was at it again when he started lecturing the US Federal Reserve Bank on the conduct of its asset-purchasing program.
  Recall that Lawrence Summers, signed a memorandum in December 1991, when he worked at the World Bank, that indicated that it would be economically efficient to send toxic waste from advanced countries to the lowest wage countries in Africa.
  Recall during his time as a bureaucrat in the Clinton Administration that that he was directly involved in a number of highly questionable matters.
  Don’t forget that he and Rubin when they ran the US Treasury were resistant to the idea that the US should participate in the Kyto protocol – see the National Archive documents accompanying this briefing – Kyoto Redux? Obama’s Challenges at Copenhagen Echo Clinton’s at Kyoto (December 18, 2009).
  And during this period, think about Summers and his role, with Robert Rubin and Alan Greenspan before the GFC to promote increasing financial market deregulation and his demonisation of Brooksley Born, who became the head of the US federal Commodity Futures Trading Commission.
  She tried to warn the US government of the increasing dangers of unregulated financial markets and was undermined by Summers.
  I wrote about that in this blog post – Being shamed and disgraced is not enough (December 18, 2009).
  And, the Enron scandal – Larry Summers’ Enron Problem (November 12, 2008).
  Recall that Lawrence Summers was warning the US government that it was dangerous to continue to be ‘dependent’ on China to fund the US deficits by purchasing government bonds.
  And don’t forget that he has coveted the position as boss of the Federal Reserve (to succeed Ben Bernanke)
  And many more instances of flawed analysis and judgements.
  Most recently, Summers and his New Keynesian mates (such as, Kenneth Rogoff) have been beating up the inflation mania story – which I addressed in this two-part series:
  1. Is the $US900 billion stimulus in the US likely to overheat the economy – Part 1? (December 30, 2020).
  2. Is the $US900 billion stimulus in the US likely to overheat the economy – Part 2? (December 31, 2020).
  I have made this point before, but the public debate is biased against progress because characters like Summers can continue to command a platform and are given elite access to the public via the mainstream media, even when there is a litany of failed steps and poor predictions.
  Anyway, onto the recent Op Ed, which appeared in the The Washington Post (August 26, 2021) – Opinion: It’s time for the Fed to rethink quantitative easing.
  There we learn about a number of key differences between the way a New Keynesian economist thinks and the way an Modern Monetary Theory (MMT) economist understands reality.
  Summers starts by drawing an analogy between Vietnam and Afghanistan and economic policy.
  I won’t pursue that, but, I don’t think any American that has been close to policy has anything much to say about either US war defeat.
  Both were disastrous choices from the outset and were always doomed to failure.
  Yes, I know that the US could have nuked both countries and claimed victory. I have been told that before. But that doesn’t get us very far.
  The point Summers is making in terms of economic policy is that one should have a long-term vision of where the policy will take us rather than adjust it “incrementally … to avoid near-term pain”.
  I agree with that statement.
  Knee-jerk adjustments to policies that are well thought out, just to appease the uninformed media etc is poor practice.
  But I disagree with his conclusion that:
  … continuing quantitative easing … has gone on for too long … [and] … cannot be justified and presents its own danger.
  My disagreement goes under the conclusion to his logic – the New Keynesian logic.
  First, he claims that:
  Quantitative easing is a policy of creating money in the form of providing interest-paying reserves to banks and buying up Treasury bonds and other government-guaranteed securities.
  Which is highly misleading.
  Usually, we consider money to be a means of payment.
  Commercial banks, operating under government license, are typically required to hold accounts with the relevant central bank, which contain balances that are used as part of the ‘settlement’ process to reconcile daily transactions across banks.
  Banks don’t loan out reserves and do not need reserves to make loans.
  Loans create deposits, which, in turn, are liquid funds that can be spent to purchase things.
  Say Bank A makes a loan to Customer A who buys something from Seller A who also banks with Bank A. All the transactions are dealt with within the accounting system of Bank A and no reserve transactions are involved.
  If Customer A buys off Seller B who banks with Bank B, then Banks A and Banks B reconcile the transaction through electronic accounting adjustments to their respective reserve balances at the central bank.
  Reserve accounts are also adjusted if a customer asks their bank for actual ‘cash’ (physical notes and coins).
  While only the central bank can create reserves, any individual bank can acquire them from another bank, which might have an excess, relative to their expected ‘clearance’ needs on any one day.
  But, if there is an overall shortage of reserves in the banking system, then the central bank is the only source and it, historically, has provided those reserves through open market operations (buying government debt instruments, usually, from the banks).
  Similarly, an excess reserve situation can only be resolved if the central bank drains them by selling government debt (usually).
  I explain in this early introductory suite of blog posts why central banks will mop up excesses or provide in the case of shortages:
  1. Deficit spending 101 – Part 1 (February 21, 2009).
  2. Deficit spending 101 – Part 2 (February 23, 2009)
  3. Deficit spending 101 – Part 3 (March 2, 2009).
  Mainstream economists call reserves ‘high powered money’, because they think somehow the provision of reserves then drives (multiplies) into a higher money supply (broad money).
  This is the flawed money multiplier idea, that New Keynesians still teach in their university courses.
  I considered that idea in this blog post – Money multiplier and other myths (April 21, 2009) – among others.
  The point is that what Summers wanted to then say is that QE, which involves the central bank purchasing financial assets held in the non-government sector, was designed to pump cash into the system – “clearly warranted when bond markets were illiquid” – in his words.
  The mistake then mainstream economists make is to assume bank lend is ‘reserve-constrained’.
  It is not, as described above.
  Loans create deposits and any necessary reserve consequences of the transactions that follow the loan creation follow after the fact and are not part of the lending process.
  QE does affect asset prices in the maturity segment that the central bank is buying the assets within (say, 3-year bonds, or 10-year bonds).
  The higher demand for the bonds resulting from the central bank purchases pushes up prices and drives down yields on those assets (returns), which then by competitive forces, realigns all returns on all similar financial assets in that temporal segment of the market.
  In that way, QE, arguably, influences aggregate spending – by changing the ‘cost’ of borrowing.
  The sale of assets in exchange for bank reserves does not increase or decrease the bank’s ability to make loans on demand from credit-worthy borrowers.
  The impact that QE has, if any, is via the interest rate effect, which is then effective or not, depending on the interest-rate sensitivity of spending (consumer and business investment, primarily).
  Summers wants the reader to assume banks are reserve-constrained in their lending practices – a major plank in New Keynesian monetary theory.
  The fact is they are not and this flaw in reasoning then leads to a range of false conclusions.
  Why does continuing QE make “little sense today”?
  Well, according to Summers:
  It is unwise at a time of unprecedented growth in federal debt and prospective deficits, along with record-low real long-term borrowing costs. If ever there were a moment to increase longer-term borrowing, it is now.
  Effectively, Summers is thinking of QE as funding government deficits (“since the Treasury is the economic owner of the Fed and receives its net income, when the Fed substitutes short-term bank reserves for longer-term debt, the government is unaccountably “terming in” the debt and shortening the maturity of its liabilities”).
  And he thinks it is better, with interest rates so low, for the government to fund itself with debt than with central bank reserve creation.
  The way I have expressed that is in terms of mainstream logic.
  Every bit of it is incorrect at the most elemental level.
  The US government can always instruct the US Federal Reserve to make certain transactions in favour of the Treasury.
  There are voluntary institutional arrangements that are embedded in law (rather than being inherent) that provide an accounting trail for these transactions but the US central bank can create reserves out of thin air and can facilitate the creation of deposits within the non-government banking sector out of thin air to facilitate government spending.
  Note that the two capacities are not equivalent.
  When the government spends some bank account is marked up (a deposit account somewhere) to reflect the transaction.
  The reserve accounting that follows depends on who holds the deposit account, what they do with it, and whether more than one bank is involved (as above).
  But the fact that the US central bank now holds a large slab of government debt as a result of buying it up in the secondary market, means that the liability inherent in the debt instrument that is a Treasury liability is now held and due to the central bank (an agency of government).
  The interest flows go from government left pocket to government right pocket, which then go back to the left pocket under current institutional arrangements.
  The non-government sector is not involved after the primary issuance and the initial QE secondary bond market transaction.
  Which means that, even under current institutional arrangements, the government is ‘funding’ its own expenditure and is not reliant on issuing private bond markets at all to ‘fund’ its spending.
  But deeper down, into intrinsic capacity territory, these accounting arrangements are smokescreens, and we know that a currency-issuing government can always spend what it likes, whenever, and if the rules intervene, it can change the rules or invoke exceptions, emergency powers, whatever.
  The point is that Summers is perpetuating the New Keynesian myth that the US government is financially constrained and spends non-government money that it borrows in one way or another.
  In relation to QE, ask yourself the question: Where does the non-government sector get the net funds from to buy the government debt in the first place that it then sells back to the central bank?
  Tracing the provenance of the funds leads you back to previous fiscal deficits that have not yet been taxed back.
  A wash as they say!
  The government really just borrows its own prior spending back.
  Summers’ second point somewhat contradicts his first, because, now he recognises that any stimulative effect comes via the interest rate effect rather than providing reserves that can be loaned out (which was his first inference).
  We are asked: “Why is this still a sensible objective when job openings are at a record high, inflation is running well above the Fed’s target, and housing inflation is not yet reflected in official indices even though the average new tenant is paying 17 percent more than her predecessor?”
  Job openings might be rising but there are still, at my last count, 5,702 thousand jobs short from where it was at the end of February 2020, and, even then, February 2020 was hardly a point of full employment.
  There is still massive poverty to be dealt with in the US society.
  The urban systems in poorer segments of the city require massive injections of funds.
  Perhaps his opening line about Afghanistan might be reworked to recognise that the US government wastes massive amounts of public spending on its external terrorist activities – illegally invading countries and then arming their enemies as they conduct inglorious exits.
  There is an argument for dramatic recomposition of US government spending, especially in relation to climate change imperatives, but my assessment is that there is still considerable spare capacity in the US economy that needs to be absorbed before any hint of fiscal austerity is entertained.
  And I don’t think rampant inflation is likely to ensue (see links to my blog posts on that topic above).
  His third point that QE inflates asset prices which “supports the wealthy who hold these assets, rather than the bulk of the population, at a moment of nearly unprecedented inequality” has currency but only tells us that the government should stop speculating in financial assets and cut to the chase and use the capacity of the central bank to facilitate government spending directly without the charade of issuing debt in the first place.
  If the government still wants to issue the debt, then just instruct the central bank to buy it up in the primary issue.
  Then the charade is open to all.
  He then morphs back into his inflation hysteria arguments, which I have dealt with elsewhere.
  Conclusion
  New Keynesian thinking is the old way.
  It will take time for all economists to recognise that.
  But its ongoing failure to deliver credible policy advice is slowly but surely eroding its credibility.
  Summers will retire eventually.
  Which will be a service to the world.

  (…)

  warren mosler
  August 31, 2021 at 23:04
  I see it as about having the interest rate thing backwards.
  He warns that if the Fed hikes rates to fight inflation interest on reserves will go up, so it would be better to leave the longer term Treasury bonds outstanding.
  The understanding that rate hikes instead support inflation is what obviates this ar
  (…)

  Derek Henry
  September 3, 2021 at 19:00
  Geopolitical
  That is the way I look at it as America is no different to the Greeks, Romans and the British.
  What is the difference between the Goldman Sachs people and two thirds of the banks and financial entities under ECB supervision that hold 346 seats in its own advisory groups. Out of the 22 advisory groups” that the ECB maintains. They have “517 representatives from 144 different entities: either corporations, companies or associations, mainly trade associations. All groups but one are completely dominated by financial corporations, and the number of seats taken by the private financial sector is an astonishing 98 per cent (508 out of 517). There is no difference.
  What is the difference between that group of thieves and the imperial political structure (comprising British India, a quasi-federation of presidencies and provinces directly governed by the British Crown through the Viceroy and Governor-General of India, Princely States, governed by Indian rulers, under the suzerainty of The British Crown exercised through the Viceroy of India.
  Or the list of governors of Roman Britain from 43 to 409. As the unified province Britannia. What the Greeks did when they conquered places. I see no difference apart from the US are in charge today and this is how they do it.
  MMT is the antithesis to all of that.
  (…)