2007 seems ages ago. It was the final year of another era, the time before the Crisis. Whatever you prefer to call it – credit crisis, debt crisis, global financial crisis, banking crisis – the crisis has scarred the shareholders of banks. Even though ten years have passed, most bank stocks still have not recovered to their pre-crisis highs.
In an event that has been called the WannaCry ransomware attack, hackers encrypted data on computers all around the world. The victims – which included hospitals and car factories – had to pay ransom in Bitcoin to get their files back.
Computers without up to date operating systems were particularly vulnerable to the attack.
People who have never come into contact with the internal IT operations of a large company find this hard to understand. Why don’t companies just install the latest patches, like private persons do on their home computers?
However, there exists a much better description for banks. In Dutch, the formal description of banks is “geldscheppende financiële instellingen”, which literally means “money-creating financial institutions”:
As far as I can tell, Dutch is the only European language in which banks are described as active money creators1. All other languages use ‘monetary intermediation’.
Maybe everybody should take a cue from Dutch and start saying ‘money creating institutions’ from now on, so we don’t have this debate a hundred years from now 😛
I explain how banks create money in Bankers are people, too. After you’ve read my book, you’ll know more about banking than many PhD economists!
The launch of the report was accompanied by a symposium in Brussels on Tuesday. During an interesting panel discussion, it was debated how the ECB can improve the way it works. Carl Dolan and Leo Hoffmann-Axthelm from Transparency International EU stressed that the ECB had cooperated with the NGO.
Many topics were covered during the discussion. For example the status of whistleblowers, freedom of information requests, and the “cool-off period” demanded when ECB executives move to the private sector.
Or to be more precise, debate about the financial institutional framework edition.
How should banks be regulated? Ten years ago, this question would have only interested a few specialists. Discussions about bank supervision and the role of the central bank were way too boring for the general public2. Besides, bankers surely knew what they were doing?
The global financial crisis and its aftermath changed this complacent attitude. The existing rules did not prevent the worse financial crisis since the 1930s. Governments had to bail out banks at a moment’s notice. Politicians took drastic decisions during the panic of September 2008. While those actions were taken with little democratic oversight, national leaders3 were the only agents willing and able to stop the collapse.
The internet offers an endless stream of analyses and opinions. On this blog, I sometimes comment on articles written by people who have a large audience. My disagreement with better known commentators is regularly confused for arrogance. “What do you know, dude? You are a blogger, the other guy is a professor.” Such statements show how easily people refer to authority1 instead of critically evaluating the arguments.
When I point out dubious logic, that does not mean the authors have nothing interesting to say. Quite the contrary, I often agree with them on many points. But pinpointing disagreements and calling assumptions into question can be very insightful. So when I critique for example Paul Krugman or Geert Noels, I’m not saying “neglect these fools”. I hope that readers will take into account my point of view, and confront it with that of others. I am no contrarian for the sake of being a contrarian.
This ideal dynamic is illustrated by historians David Wootton and Joel Mokyr. Mokyr’s book A Culture of Growth: The Origins of the Modern Economy explains why Western Europe was the first region in the world to make sustained technological and economic progress. In his review, Wootton summarizes the thesis put forth in the book. Then, he argues that the story is incomplete. In the comments below the review, both gentlemen defend their points of view.
That is one of the advantages of the internet. Well-informed contributors can quickly challenge opinions. I have learned a lot over the years from (often anonymous) online commentators. It is a shame many media have closed down the comment sections. Blocking feedback does not add to their credibility.
I would advise scientific journals to enable comments as well. Papers go through peer-review before they are published, but the reader cannot see these discussions. Commenting on a scientific article via a new publication takes a lot of time. Getting out new results and contradictory information faster would accelerate learning in all disciplines. Blogs can also expose disinformation.
If you don’t agree with me, you can always let me know in the comments!
Update 17/05/2017: Chris Said has a nice blog post on different levels of understanding. He calls the dialectic process of reaching the next level ‘Learning by flip-flopping‘. Open discussions as I advocate above are the means to transcend your previous, more basic knowledge.
The professors get to the hyperinflation at 8:20 into the conversation. Fernández-Villaverde tells the story of how inflation got out of hand when French and Belgian troops occupied the Ruhr3. The Weimar government encouraged workers to resist the military occupation. Strikers were paid with money freshly printed by the Reichsbank, the German central bank. The combination of no real economic production with an increasing amount of Papiermarks tanked the purchasing power of the currency. The hyperinflation began. Continue reading “Why do Germans remember the Weimar hyperinflation?”
The European Conservatives and Reformists (ECR) group in the European Parliament recently launched “Leer Geld”, an initiative led by MEP Sander Loones, to raise awareness about the effects of the monetary policy conducted by the European Central Bank (ECB).
The initiative is to be welcomed: monetary policy is too often overlooked by civil society, yet its impact on our lives has never been greater. Under its “quantitative easing” programme (QE), the ECB has been buying large quantities of government bonds since 2015. Surely injecting the equivalent of 20 percent of GDP into the eurozone finance sector cannot be without consequences. (continue)