Is Financial Fraud Too Complex to Prosecute?

William K. Black, Guest Blogger

This interview with William K. Black (University of Missouri-Kansas City) appeared originally at The Real News Network. Prof. Black describes why the U.S. Department of Justice has failed to prosecute executives at financial institutions that helped to detonate the recent crisis. It is not, Black argues, that the bankers were engaged in “rocket science” too complex to prosecute, but that the lack of prosecutions is “a matter of will and a matter of ideology.” His writings on this and other subjects can be read at New Economic Perspectives.

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More Finance, More Growth? More Finance, More Crises?

By Simon Sturn and Gerald Epstein

A large body of cross-country time-series literature shows that financial development—predominantly measured by private credit as a percent of GDP—fuels growth. But, in light of the many recent episodes of finance driven crisis, these results seem curious. Haven’t we seen that periods of rapid credit expansion are also often periods of economic crisis?

The answer to this puzzle might have to do with the time horizon under consideration. A broad theoretical literature argues that credit demand and supply are correlated with growth in the short-run. Credit demand is “pro-cyclical”—firms are reluctant to borrow and invest during business-cycle slumps, periods of low demand and high uncertainty, while the opposite is true for business-cycle booms. Credit supply is also pro-cyclical, as banks are less willing to lend during recessions, when banks have less capital and borrowers have lower net worth, than during upturns.

Finance and growth, then, are correlated in the short run, but this does not imply that finance also causes long-run growth. Therefore, it is crucial to address the short-run pro-cyclical fluctuations of credit in empirical studies on the impact of finance on growth. Otherwise, the true long-run growth effect of financial development will be overstated.

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Confronting Financialization on Steroids

Costas Lapavitsas, Guest Blogger

The interview below is from a series on The Real News Network’s Reality Asserts Itself, with Paul Jay. Jay interviews Costas Lapavitsas, professor of economics at the School of Asian and Oriental Studies, University of London, and author of the book Profiting Without Producing: How Finance Exploits Us All (Verso). Lapavitsas recently did an interview with Triple Crisis blog and Dollars & Sense magazine, serialized here (part 1, part 2, part 3, part 4).

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The Era of Financialization, Part 3

This is the third part of a four-part interview with Costas Lapavitsas, author of Financialised Capitalism: Expansion and Crisis (Maia Ediciones, 2009) and Profiting Without Producing: How Finance Exploits Us All (Verso, 2014). This part considers financialization in relation, first, with industrial and commercial enterprise and, second, with the household. It then turns to the main consequences of financialization, in terms of economic stability, development, and inequality. (See the earlier parts of the interview here and here.)

Costas Lapavitsas, Guest Blogger

Part 3

Dollars & Sense: A striking aspect of your analysis of industrial and commercial enterprises is that, rather than simply becoming more reliant on bank finance, they have taken their own retained profits and begun to behave like financial companies. Rather than plow profits back into investment in their core businesses, they are instead placing bets on lots of different kinds of businesses. What accounts for that change in corporate behavior?

CL: In some ways, again, this is the deepest and most difficult issue with regard to financialization. Let me make one point clear: to capture financialization and to define it, we don’t really have to go into what determines the behavior of firms in this way. Financialization is middle-range theory. If I recognize the changed behavior of the corporation, that’s enough for understanding financialization. It’s good enough for middle-range theory. Now obviously you’re justifiedto ask this question: why are corporations changing their behavior in this way? And, there, I would go back at some point to technologies, labor, and so on—the forces and relations of production.

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Raising Big Banks’ Leverage Ratio Good, But Not Nearly Enough

Gerald Epstein

Sharmini Peries of the Real News Network interviews Triple Crisis blogger Gerald Epstein about new U.S. federal government regulations raising the required capital banks must hold. Epstein explains why the regulations will be more stringent, allowing fewer loopholes, than previously, why they will reduce systemic risk somewhat in the banking system, but why they’re “probably not enough.”

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Raising Big Banks' Leverage Ratio Good, But Not Nearly Enough

Gerald Epstein

Sharmini Peries of the Real News Network interviews Triple Crisis blogger Gerald Epstein about new U.S. federal government regulations raising the required capital banks must hold. Epstein explains why the regulations will be more stringent, allowing fewer loopholes, than previously, why they will reduce systemic risk somewhat in the banking system, but why they’re “probably not enough.”

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The Era of Financialization, Part 2

This is the second part of a four-part interview with Costas Lapavitsas, author of Financialised Capitalism: Expansion and Crisis (Maia Ediciones, 2009) and Profiting Without Producing: How Finance Exploits Us All (Verso, 2014). This part turns toward international aspects, including the contrasts between financialization in high-income and developing countries and the relationships between financialization and both neoliberalism and globalization. (See the first part here.)

Costas Lapavitsas, Guest Blogger

Part 2

Dollars & Sense: You’ve anticipated our question about whether financialization is exclusive to high-income capitalist countries or is also happening in developing countries. How is it different in developing countries?

CL: Financialization in developing countries is a recent phenomenon, which has begun to emerge in the last 15 years in full earnest. We see a number of middle-income countries that are financializing, and we have to look at it carefully to understand it. One thing that is immediately obvious is that, in mature countries, financialization has been accompanied by weak or indifferent performance of the real economy. Rates of growth have been weak, crises have been frequent, unemployment has been above historical trends. We see a problematic state of real accumulation in mature countries. But when we look at developing countries, it is possible to see countries with phenomenal financialization, where growth has been reasonably strong. Brazil has been financializing during the last ten years, and yet its growth rate has been significant. Turkey has been financializing and yet its growth rate has been significant, and so on. So financialization in developing countries is not the same as in mature countries, because typically in the last ten years, it’s been accompanied by significant rates of growth.

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The Era of Financialization, Part 1

This is the first part of a four-part interview with Costas Lapavitsas focusing on the Era of Financialization and the transformations at the “molecular” level of capitalism that are driving changes in economic performance and policy in both high-income and developing countries. Lapavitsas is a professor of economics at SOAS, University of London, and the author of Financialised Capitalism: Expansion and Crisis (Maia Ediciones, 2009) and Profiting Without Producing: How Finance Exploits Us All (Verso, 2014).

Costas Lapavitsas, Guest Blogger

Part 1

Dollars & Sense: Over the past few years we’ve heard more and more about the phenomenon of “financialization” in capitalist economies. This concept appears prominently in your writings. How would you define “financialization”?

Costas Lapavitsas: Well, it’s very easy to see the extraordinary growth of the financial sector, the growth of finance generally, and its penetration into so many areas of economic, social, and even political life. But that, to me, is not sufficient. That is not really an adequate definition. In my view—and this is  basically what I argue in my recent book and other work that I’ve done previously—financialization has to be understood more deeply, as a systemic transformation of capitalism, as a historical period, basically. I understand it as a term that captures the transformation of capitalism in the last four decades. To me, this seems like a better term to capture what has actually happened to capitalism during the last four decades than, say, “globalization.”

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Too-Big-To-Fail Advantage Remains Intact For Big Banks

Gerald Epstein

Anton Woronczuk of the Real News Network interviews Triple Crisis blogger Gerald Epstein about the borrowing advantages enjoyed by “Too Big to Fail” banks, due to creditors’ confidence that the banks will be bailed out if they are in danger of failing. Little has changed, Epstein, warns–in terms of the big banks’ advantages or their risk taking–due to the financial crisis or subsequent regulation.

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Framework for Analyzing Risks of Chinese Shadow Banking

Sara Hsu

Recently, I gave a private talk on the risks of shadow banking and included the following table in a handout. I include a somewhat abbreviated version on this blog post for readers to use as well. I rate and provide and brief explanation for the level of liquidity, solvency, and market risk contained in these shadow banking sectors. This is elaborated on to some extent in my recent blog post here.

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