« A composer meets a philosopher on the bus | Main | On Fame in Philosophy »

11/16/2015

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

Alexander Douglas

People who propose more equity financing as a magic bullet solution have an unearthly faith in the wisdom of markets. What bothers me about that proposal is that it distracts us from asking whether there are certain things that banks just *shouldn't do*, since nobody - not even the equity investors, to whom neoclassicals ascribe powers of private revelation - can appropriately manage the risks.

I have yet to hear a convincing explanation of why banks should do any more than administer the payments system and lend to creditworthy borrowers, keeping the loans on their own balance sheets. It remains a mystery to me why they should be able to sell loans on to third parties, to engage in financial speculation (taking financial assets as collateral for loans), to do forex speculation, to sell credit default insurance, etc. People say all this gets much-needed liquidity into the markets, by which they mean hot money going into speculative bubbles. I don't see the social need for any of that. I have nothing against speculation in principle, as an activity free economic agents can engage in on their own behalf. But nobody has yet explained to me why *banks* should do it.

Rather than getting banks to fund off more equity, why not let equity investors engage in such activities on their own if they choose, while keeping banks to their original, narrow purpose? This is what Minsky proposed (cf http://www.levyinstitute.org/pubs/wp_612.pdf). Am I missing something important?

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been saved. Comments are moderated and will not appear until approved by the author. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Comments are moderated, and will not appear until the author has approved them.

Your Information

(Name and email address are required. Email address will not be displayed with the comment.)

Here's a link to my past blogging (and discussions involving me) at: New APPS.

Categories

Blog powered by Typepad