"Three Futures for Postcrisis Banking in the Americas: The Financial Trilemma and the Wall Street Complex"

This would seem an opportune moment to reshape banking systems in the Americas. But any effort to rethink and improve banking must acknowledge three major barriers. The first is a crisis of vision: there has been too little consideration of what kind of banking system would work best for national economies in the Americas. The other two constraints are structural. Banking systems in Mexico and the rest of Latin America face a financial regulation trilemma, the logic and implications of which are similar to those of smaller nations’ macroeconomic policy trilemma. The ability of these nations to impose rules that would pull banking systems in the direction of being more socially productive and economically functional is constrained both by regional economic compacts (in the case of Mexico, NAFTA) and by having a large share of the domestic banking market operated by multinational banks. For the United States, the structural problem involves the huge divide between Wall Street megabanks and the remainder of the U.S. banking system. The ambitions, modes of operation, and economic effects of these two different elements of U.S. banking are quite different. The success, if not survival, of one element depends on the creation of a regulatory atmosphere and set of enabling federal government subsidies or supports that is inconsistent with the success, or survival, of the other element.Banking; Financial Crisis; Trilemma; Wall Street; Mexico; United States; Financial Regulation; Megabanks; Regional Compacts; NAFTA

Limits of Policy Intervention in a World of Neoliberal Mechanism Designs: Paradoxes of the Global Crisis

The current global context poses several paradoxes: the recovery from the 2009 recession was not a recovery; investment, normally driven by profit rates, is lagging and not leading economic activity; the crisis is global but debate involves sub-global levels; and public safety-nets, which have helped to stabilize national income, are being cut. These paradoxes can be traced, in part, to the impact of the “truce” that followed the Keynesian-Monetarist controversy on economists’ ideas about policy activism. This implicit “truce” has removed activist macro policy from discussion, and shifted attention toward institutions as mechanisms for solving game-theoretic coordination problems. Policy activism then centers on how the “agents” (nations) can achieve optimal use of their available resources (or optimal access to resources) at the global level; and this involves creating and fine-tuning compacts – neoliberal mechanism designs – that can capture rents and attract globally mobile capital. This approach leads economists to see the key problem in the current global crisis as fixing broken neoliberal mechanisms. However, a global economy dominated by mechanisms that feed on aggregate demand without generating it faces the prospect of stagnation or collapse.Neoliberal mechanism design, Policy activism, Keynesian- Monetarist controversy, Globalization, Capital mobility, Hyman Minsky, Bradford De Long

BANKING STRATEGY AND FINANCIAL EXCLUSION: TRACING THE PATHWAYS OF GLOBALIZATION

This paper argues that the current world-wide scenario of liberalized banking and financial exclusion has emerged because of two successive phases of financial globalization: a macro-scale globalization beginning in the late 1970s and persisting two decades; and a micro-scale globalization that is, the movement across borders of banking firms and banking practices - beginning in the late 1980s and still gathering force. Contrary to those who view micro-scale globalization as shifting formerly sheltered national banking systems toward efficiency, this paper argues that micro-scale globalization is generating both financial inclusion for the privileged and financial exclusion for the poor or working poor. That is, the micro-scale globalization processes move not only along an efficiency/inefficiency axis, but also along an axis of wealth-equality/opportunity; and moves in the direction of efficiency may force a given economy further from the point of equality of opportunity and wealth.Este artigo argumenta que o corrente cenário mundial de liberalização bancária e exclusão financeira surgiu em virtude de duas sucessivas fases de globalização financeira: uma globalização em macro-escala iniciada no fim dos anos 70 e que persistiu por duas décadas; e uma globalização em micro-escala ou seja, o movimento além das fronteiras das firmas e práticas bancárias iniciada no fim dos anos 80 e que ainda reúne força. Contrário a aqueles que vêem a globalização em micro-escala , este artigo argumenta que a globalização em microescala está gerando uma inclusão financeira para os privilegiados e uma exclusão financeira para os pobres ou trabalhadores pobres. Ou seja, os processos de globalização em micro-escala não se movem somente ao longo do eixo eficiência/ineficiência, mas também ao longo de um eixo de riqueza-igualdade/oportunidade, e os movimentos na direção de uma eficiência podem forçar uma dada economia ir além do ponto de igualdade de oportunidade e riqueza

THE GLOBAL CRISIS AND THE GOVERNANCE OF POWER IN FINANCE

This article examines why the global financial crisis that began in 2007 has intensified policy debate about financial regulation and governance, and brought about the end of polite discourse in economics. Coming into the crisis, the received view on financial regulation regarded power in finance as a matter of market concentration alone, and understood concentration as stabilizing and an indication that competitively fit firms were dominating the market. This article argues that the current crisis necessitates a refraining of our understanding regarding the governance—not simply regulation—of finance. At the core of this reframing must be a much richer, multi-dimensional conception of power and its implications in financial systems. This article argues that the locus of power in finance has shifted with the rise of the "originate-and-distribute" model in the 2000s. This shift created new possibilities for rent-extraction and speculation, to which the existing model of regulation was not prepared to react. The subprime crisis emerged precisely, in the view developed here, in the context of this crisis in the governance of power in finance. So restoring effective financial regulation will require a deep rethinking of what finance has become, and what it should be. The challenge is profound, for resolving the nearly global crisis of financial systems—and, by extension, of macroeconomic stagnation—depends on recognizing and responding to the considerable, multi-dimensional power accumulated by the very financial firms whose dysfunctionality helped create that crisis in the first place. </p

INTERRELATED BANK STRATEGIES, FINANCIAL FRAGILITY AND CREDIT EXPANSION: A POST KEYNESIAN APPROACH

This paper aims at clarifying the relationship between individual bank and banking industry behavior in credit expansion. We argue that the balance sheet structure of an individual bank is only partially determined by its management decision about how aggressively to expand credit; it is also determined by the balance sheet positions of other banks. This relationship is explicitly shown by a disaggregation of the variable that enters into the simple money multiplier. The approach developed here opens a way to integrating the micro and macro levels in a Keynesian banking-system analysis.

Racial Exclusion and the Political Economy of the Subprime Crisis

Abstract Th is paper develops a political economic explanation of the 2007-9 US subprime crisis which focuses on one of its central causes: the transformation of racial exclusion in US mortgagemarkets. Until the early 1990s, racial minorities were systematically excluded from mortgagefi nance due to bank-redlining and discrimination. But, then, racial exclusion in credit-markets was transformed: racial minorities were increasingly given access to housing-credit under terms far more adverse than were off ered to non-minority borrowers. Th is paper shows that the emergence of the subprime loan is linked, in turn, to the strategic transformation of banking in the 1980s, and to the unique global circumstances of the US macro-economy. Th us, subprime lending emerged from a combination of the long US history of racial exclusion in credit-markets, the crisis of US banking, and the position of the US within the global economy. From the viewpoint of the capitalist accumulation-process, these loans increased the depth of the fi nancial expropriation of the working class by fi nancial capital. Th e crisis in subprime lending then emerged when subprime loans with exploitative terms became more widespread and were made increasingly on an under-collateralised basis -that is, when housing-loans became not just extortionary but speculative