Explaining Southern California's economy

Michael Lewis on too-big-to-fail banks: Kick out the kids and break 'em up!

Check out the above video, one of the series, of Michael Lewis in conversation with Jacob Weisberg of the Slate Group. It's a quickie but a goodie. Lewis covers a lot of ground. The young guns of Wall Street shouldn't have been getting paid $2 million! Credit default swaps (a) shouldn't have been invented — "innovation" in finance is not necessarily a good thing — and (b) were bound to lead to people betting against the securities, mainy home mortgages, they were based on.

But things really get interesting when Lewis starts sounding exactly like L. Randall Wray, an increasingly prominent economist from the University of Missouri, Kansas City, and a proponent of an increasingly popular new school of economics thinking called "Modern Monetary Theory" (some call it Neo-Chartalism). Wray also says the big banks need to be broken up. I've embedded a video below in which he discusses this idea. He's not exactly Michael Lewis. But the message is quite similar.

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Bank bailout math: It was actually $29 trillion

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AP Photo / J. Scott Applewhite

The Federal Reserve Building in Washington, DC.

How big was the too-big-to-fail bailout of U.S. banks? If you said, "$700 billion," then you'd be limiting yourself to the Troubled Assets Relief Program (TARP) that was authorized in late 2008, in response to the financial crisis.

But if you're a student of economist L. Randall Wray at the University of Missouri-Kansas City, backed by a Ford Foundation grant to find out just how much the bailouts cost, you'd have a slightly different answer: $29 trillion. Almost $30 trillion, actually, if it's your policy to round up from $600 billion.

Here's Wray, at the Huffington Post:

[A]nalyses of the bail-out variously put the total at $7.77 trillion (Bloomberg) to $16 trillion (GAO) or even $24 trillion. He argues that these reports make "egregious errors," in particular because they sum lending over-time. He also claims that these high figures likely include Fed facilities that were never utilized. Finally, he asserts that the Fed's bail-out bears no relation to government spending, such as that undertaken by Treasury.

All of these assertions are at best misleading. If he really believes the last claim, then he apparently does not understand the true risks to which he exposed the Treasury as the Fed made the commitments.

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