Moral hazard or creative destruction?

As I write, US regional banks stock and bond prices are diving.  And a major international Swiss bank, Credit Suisse, is close to bankruptcy.  A financial crisis not seen since the global financial crash of 2008 appears to be unfolding.  What will be the response of the monetary and financial authorities?

Back in 1928, the then US treasury secretary and banker Andrew Mellon pushed for higher interest rates in order to control inflation and credit fuelled stock market speculation.  At his bequest, the Federal Reserve Board began raising interest rates and in August 1929 the Fed banged up the rate to a new high.  Just two months later in October 1929, the New York Stock Exchange suffered the worst crash in its history in what was called “Black Tuesday“.  History repeats.

In 1929 Mellon was undeterred.  He advised the then president Hoover to “liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.” Additionally, he advocated the weeding out of “weak” banks as a harsh but necessary prerequisite to the recovery of the banking system. This “weeding out” would be accomplished through refusing to lend cash to banks (taking loans and other investments as collateral) and by refusing to put more cash in circulation.  The Great Depression of the 1930s followed a major banking crash.

In 2008, when the global financial crash unfolded, at first the authorities aimed at something similar.  They allowed investment bank Bear Stearns to go under.  But then came another, Lehman Bros.  The Federal Reserve dithered and finally decided not to save it with a bailout of credit.  What followed was an almighty crash in stocks and other financial assets and a deep recession, the Great Recession.  Fed chair Ben Bernanke at the time was supposedly a scholar of the Great Depression of the 1930s and yet he agreed for the bank to fail.  Subsequently, he recognized that as ‘lender of last resort, the job of the Fed was to avoid such collapses, particularly for those banks that are ‘too big to fail’ which would only spread the busts across the whole financial system.

It’s clear that now governments and monetary authorities want to avoid ‘liquidate, liquidate’ and the Lehmans crash, even if such a policy would clear away the ‘dead wood’ and “rotteness of the system” for a new day.  Politically, it would be disastrous for governments presiding over yet another banking collapse; and economically, it would probably trigger a new and deep slump.  So it’s better to ‘print more money’ to bail out the banks’ depositors and bond holders and avert financial contagion – the banking system being so interconnected. 

That’s what the authorities eventually did in 2008-9 and that it what they will do this time too.  Officials were initially unsure about rescuing Silicon Valley Bank. They quickly changed their minds after signs of nascent bank runs across the US.  Interviews with officials involved or close to the discussions paint a picture of a frenzied 72 hours.  Credit Suisse too is likely to get similar financial support.

There are supporters of Mellon’s approach today and they still have a point.  Ken Griffin, founder of a large hedge fund Citadel, told the Financial Times that the US government should not have intervened to protect all SVB depositors.  He went on: “The US is supposed to be a capitalist economy, and that’s breaking down before our eyes…There’s been a loss of financial discipline with the government bailing out depositors in full.” Griffin added.  We can’t have “moral hazard,” he said. “Losses to depositors would have been immaterial, and it would have driven home the point that risk management is essential.”

Moral hazard is a term used to describe when banks and companies reckon that they can always get money or credit from somewhere including the government.  So if they make reckless speculations that go wrong, it does not matter.  They will get bailed out.  As Mellon might have put it: it’s immoral. 

The other side of the argument is that banks that get into trouble should not mean that those who deposit their cash with them should not lose it through no fault of their own.  So governments must intervene to save the depositors.  And they too have a point.  As another hedge fund billionaire, Bill Ackman, put it when the SVB collapse emerged, the Federal Deposit Insurance Corporation must “explicitly guarantee all deposits now” because “our economy will not function nor our community and regional banking system”.  Mark Cuban expressed frustration with the FDIC insurance cap that guarantees up to $250,000 in a bank account as being “too low”; he also insisted the Federal Reserve buy up all of SVB’s assets and liabilities. Rep. Eric Swalwell, a California Democrat, joined the chorus, tweeting that “We must make sure all deposits exceeding the FDIC $250k limit are honored.”

The irony here is that those demanding bailouts now are the very venture capitalists who usually stand firmly for the ‘free market and no government intervention’.  Another bailout supporter is one Sacks, a longtime associate of investor Peter Thiel, who fervently believes in ‘free markets’ and in ‘capitalism’. But it was Thiel’s Founders Fund that helped kick off the bank run that sank SVB in the first place.

FT columnist Martin Wolf explained the dilemma.  “Banks fail. When they do, those who stand to lose scream for a state rescue.”  The dilemma is that “if the threatened costs are big enough, they will succeed. This is how, crisis by crisis, we have created a banking sector that is in theory private, but in practice a ward of the state. The latter in turn attempts to curb the desire of shareholders and management to exploit the safety nets they enjoy. The result is a system that is essential to the functioning of the market economy but does not operate in accordance with its rules.”  So it’s moral hazard because the alternative is Armageddon.  As Wolf concludes: “it’s a mess.”

So what’s the solution offered to avoid these continual banking messes?  Liberal economist Joseph Stiglitz tells us that “SVB represents more than the failure of a single bank. It is emblematic of deep failures in the conduct of both regulatory and monetary policy. Like the 2008 crisis, it was predictable and predicted.” But having told us that regulation was not working, Stiglitz argues that what we need is more and stricter regulation! “We need stricter regulation, to ensure that all banks are safe.”  Well, how’s that worked up to now?

Nobody has anything to say for public ownership of the banks; nothing about making banking a public service and not a vast sector of reckless speculation for profit. SVB collapsed because its owners bet on rising government bond prices and low interest rates to boost their profits. But it went pear-shaped and now other bank customers will pay for this in increased fees and losses for the Federal Reserve – and there will lees funding of productive investment to pay for yet another banking mess.

This is what I said 13 years ago: “The answer to avoiding another financial collapse is not just more regulation (even if it was not watered down as the Basel III rules have been). Bankers will find new ways of losing our money by gambling with it to make profits for their capitalist owners. In the financial crisis of 2008-9, it was the purchase of ‘subprime mortgages’ wrapped up into weird financial packages called mortgage backed securities and collateralised debt obligations, hidden off the balance sheets of the banks, which nobody, including the banks, understood. Next time it will be something else. In the desperate search for profit and greed, there are no Promethean bounds on financial trickery.”

Let us return to the dilemma of choosing between ‘moral hazard’ and ‘liquidation’.  As Mellon said, by liquidating the failures, even if it means a slump, that is a necessary process for capitalism.  It’s a process of ‘creative destruction,’ as 1930s economist Joseph Schumpeter described it.  Liquidation and the destruction of capital values (along with mass unemployment) can lay the basis for a ‘leaner and fitter’ capitalism able to renew itself for more exploitation and accumulation based on higher profitability for those that survive the destruction.

But times have changed.  It has become increasingly difficult for the strategists of capital: the monetary authorities and governments to consider liquidation.  Instead ‘moral hazard’ is only option to avoid a major slump and political disaster for incumbent governments.  But bailouts and a new round of liquidity injections would not only completely reverse the vain attempts of the monetary authorities to control still high inflation rates.  It also means the continuation of low profitability, low investment and productivity growth in economies unable to escape from their zombie state.  Just more long depression.

39 thoughts on “Moral hazard or creative destruction?

  1. Thanks for the history and analysis. Maybe the gov could design a way to randomly bail out enough failed capitalists to stabilize markets while letting enough flounder to reduce moral hazard:). Seems like what we have is socialism for the capitalists. And creative destruction for everyone else.

  2. One solution is thorough-going fascism. Nationalize everything; dictate high industry specific profitability, low job specific wage rates, command development of war industries, further elaboration of religious, nationalistic, racist, sexist ideology, etc.

    Or…eliminate profit, money, wages, production only for the needs of the working class, combat religious, nationalistic, racist, sexist ideology.

    In the long run those are the only solutions.

    1. Fascism doesn’t promote reindustrialization. Let alone it “dictate … specific profitability”. These are simply myths extrapolated from the very short existence of the Third Reich. Either way, it leads to all-out war, so it is only a “long term solution” if you compress time (i.e. an apocalyptic nuclear fallout).

      Germany already was the second industrial superpower by the time Hitler rose to power (above the British Empire, behind only the USA). In fact, WWI happened precisely because Germany was already a too dangerous economic rival to the British Empire, not vice versa: it wasn’t WWI that industrialized Germany, but Germany’s industrialization that caused WWI. Hitler merely reactivated an industry that already existed (we can clearly see this is the case by comparing Germany industrial output and technology to that of Italy’s, which was the original fascist nation and couldn’t even conquer Greece).

      The “command economy” of the Third Reich was a mere expedient of WWII: the industrial capitalists had a board will full powers, and frequently negotiated and won the arm wrestle against Hitler during the whole duration of the War. Profitability was guaranteed by slave labor from war prisoners, not some kind of magical fascist system.

      The Third Reich was the Weimar Republic: Hitler didn’t change one life of the Weimar Constitution. Everything he did was legal from the point of view of the Rule of Law enshrined by Weimar. There is no fascist system: it is all liberalism/capitalism. The narrative that Hitler “subverted the Weimar Constitution” is a blatant revisionism by the liberal historians who wanted to clean Bismarck, the SPD et al’s sheet. Fascism is a form of liberalism in the literal sense: the Third Reich was literally the Weimar Republic.

      Finally, the very concept of “war economy” is a myth. The technological revolution that made the WWs what they were were fruit of the culmination of centuries of development of European/Western science, which culminated with the brilliant generation of which Albert Einstein was just the youngest, the late remnant. War generates technological development like every other sector of the economy at an ontological level; on single war may or may not promote the development of the productive forces. If they did, humanity would see a much more linear, smoother history of technological development, instead of revolutions, because we’ve been at war against each other since the the birth of the patriarchal system and its correspondent end of primitive communism.

      1. Brilliant synopsis of both nazism/fascism and the post primitive communism/endless war nature of patriarchal civilization… Socialism/communism is the promethean, only alternative.

      2. No, vk, the “Ermächtigungsgesetz” acutally suspended the Weimar constitution.

        The fascist state ruled by fascist terror, by violently destroying any remnant of an organized workers movement, as is the task of fascism, and that was possible because both big workers party capitulated without a fight, each in her own way.

      3. ???

        The Ermächtigungsgesetz was a very well known and used legal device during the Weimar Republic. Hitler wasn’t even close to being the first German politician to use it.

      4. “The Third Reich was the Weimar Republic: Hitler didn’t change one life of the Weimar Constitution. Everything he did was legal from the point of view of the Rule of Law enshrined by Weimar. There is no fascist system: it is all liberalism/capitalism. The narrative that Hitler “subverted the Weimar Constitution” is a blatant revisionism by the liberal historians who wanted to clean Bismarck, the SPD et al’s sheet. Fascism is a form of liberalism in the literal sense: the Third Reich was literally the Weimar Republic.”

        Ridiculous. You can say that Weimar and the Third Reich were both expressions of capitalism. You cannot say the Third Reich WAS Weimar. That’s just one more way of flogging the third period nonsense of “Social Democracy and Fascism are twins,” which of course led to the brilliant strategy of “Nach Hitler, Uns!” How did that work out for “uns”? Well?

        Leave it to vk, the ” real Marxist” to present the ideologies of past failures as accurate history.

        Leave it to mandm, when he’s not slurring others with his “real redder than thou” junk, praises the repetition of those failures as “brilliant”

        Am not a religious person but sometimes I remember the grunts’ prayer: “Dear Lord, save us from our officers and we’ll handle the enemy.”

        Dear Lord, save us from our vanguards and we’ll handle the bourgeoisie.

      5. L.Willms is referring to the Enabling Act signed into law March 23, 1933. The Act gave the Chancellor, who was Hitler the power to enact laws without parliamentary approval or authorization, and without the agreement of the President of the Weimar Republic. The Act followed the Reichstag Fire Decree that declared a state of emergency and abolished civil liberties.

        Concentrating all power in the Chancellor’s cabinet, meaning Hitler himself. If the Reichstag Fire Decree was the end to Weimar, the Enabling Act was the birth of the Third Reich.

      6. This is not a History blog, so this will be my last reply on this subject.

        The Weimar Republic had many enabling acts since 1914, it was an integral part of its logic and, by 1933, already was firmly within German jurisprudence. We know, with hindsight, that the Weimar Republic never came back from 1933 — but the German people in 1933 didn’t know that: to them, it was just another enabling act.

        What’s more, the fact that the Third Reich didn’t collapse per se, but it was literally destroyed in a total war against the USSR. The Workers and Peasants Red Army literally marched through, razed and planted the communist flag over the Reichstag. So, the reason the Weimar Republic didn’t come back from the Enabling Act of 1933 was because it was literally destroyed while in effect of that EA, not because it couldn’t have come back from that.

        To say the Enabling Act of 1933 was the end of the Weimar Republic is the same thing as to say someone died in a car accident while with a flu, and blaming the flu for his death and not the car accident. In an alternate time line, maybe the Third Reich could have made the EA 1933 permanent — just like the reforms of Augustus, with hindsight, meant the end of the Roman Republic — but maybe not. Doesn’t change the objective fact that it was the USSR — not Hitler — that destroyed the Weimar Republic.

      7. VK: “This is not a history blog….”

        Sure isn’t, particularly with your distortions of actual history. The issue isn’t if there were Enabling Acts under Weimar, but if the 1933 actions of the Nazis in coalition with conservatives, monarchists, rightists represented a substantive change in the political administration of the state in order to preserve capitalist property.

        And in concentrating all power in the chancellery i.e. in the hierarchy of the Nazi Party, it represented exactly that substantive change. You might as well argue that there was no substantive change in Chile with the overthrow of Allende. Of course there was, regardless of the UP’s role in suppressing the cordones, in allowing the CDU to agitate for a coup, and even in promoting Pinochet to chief of the army. That’s a historical analogy certainly more appropriate than one concerning the details of a traffic incident.

    2. ‘’In the long run, those are the only solutions. (Communism and Fascism)’’
      There are not two solutions, there is only one: Communism. And I will not say that it is determined, but it is highly conditioned because it is the one that offers the most profitability to the species as a whole. Communism is just a “Major Transition in Evolution” (John Maynard Smith and Eörs Szathmáry) according to the best evolutionary biology. The species unites to survive longer and better. But he does it painfully.
      Fascism (Hitler, Mussolini, Franco, etc…) was only a step back, a setback, a counterrevolution (a violent step back) on the road to Communism. Capitalism also suffered steps backwards. The most famous was caused by the “European Restoration” in the 19th century. The revolutions cause impulses and cycles with a forward and a backward phase. The socialist revolution (1917 and 1959) follows the same pattern: impulse-advance-retreat. But there will be no fascisms because fascism ALREADY happened, and the next socialist push is very likely to be final.

    3. The on,y way for capitalism is a devaluation of capital on the scale of world war which could be the end of humanity. Alternatively, socialism

  3. Here’s the conundrum (from your link to The Guardian):
    “The SVB blow-up, like last autumn’s crisis with UK pension funds’ LDI (liability-driven investment) strategies, has its deep roots in the rise in interest rates, which in turn has created unrealised losses on bond portfolios.”
    Surely the smartest bankers in the Fed (and elsewhere) KNEW that raising interest rates would cause this current rash of bank woes.
    Further, as you’ve shown Mr. Roberts, it’s price gouging due to supply-side problems post-pandemic that have caused much of the inflation; surely this is self-evident.
    So, why the bitter interest-rate-rise pill? Is there some sort of conspiracy afoot here??

    1. In short, due to the dominant state of the US dollar in this world, America could use its interest rate to control the international money flow; when it rises up, the money flows out from other countries’ markets to America, because the national debt of US could provide stable benefit for investors, at the same time, because of the flow of capital, other countries would face a shortage of US dollar to buy the commodity from the global market, then their economy would collapse. After that, US capital could do the things that they did in Latin America, Russia, and Southeast Asia again; harvest these countries’ high-quality assets with nearly no cost.

      In the last year, this idea is one of the reasons that lead the US to provoke the war between Russia and Ukraine; If Russia collapsed because of the sanction, the US could use Russian resources to control its inflation, If the EU or other industrialized countries collapsed due to the price increase of oil, US could harvest their wealthy. To American financial capital, harvest US’s allies or US’s enemies, the money they earn was no difference (Think about Nord Stream 2, harvesting its allies might be easier). Unfortunately, there are not any major countries that collapsed this year, the cost has been paid, but the earing is still far away, so currently, the US needs to suffer for it now.

      1. Yet another conspiracy theory of the Ukraine war. If the US and NATO had been cooking up a “proxy war” since 2014, why are they so singularly unprepared to adequately supply Ukraine now?

        In addition, the Fed funds rate hike crisis, as that is what it is, with analogies to the Truss fiasco that preceded it, collides head on with the need of the USA and its East Asian and NATO allies to boost military spending in the intensifying global inter-imperialist competition, AND at the same time do something about the climate emergency, an issue they simply cannot ignore. This when the USA’s debt to GDP ratio is already at WWW2 levels thanks to past banking and general bailouts and subsides to capital. The hope is vanishing that the world capitalist system will successfully address the climate emergency; the need for more military spending runs smack into the debt ratio wall floating atop an unstable banking system that will demand more bailouts. Faced with such Federal budget constraints, US finance capital and its politicians will have to decide if they could get away with radical attacks on working class social spending in order to shift funds to military expenditures in the face of budgetary spending limits – the positively reactionary course that risks further social and political destabilization, but avoids restructuring military expenditures along more rational lines, and thus splintering the MIC and its patrons, including the officer corps – or, under the same Federal budget constraints, they opt for an internal restructuring of the Pentagon force toward more of the bread and butter items required it you plan to fight a large scale conventional war. Oh well, they could nationalize the MIC, taking the pressure off of finance!

  4. What about derivatives? If the losses started snowballing, there’d be no way to make everyone whole. So there would be massive losses and haircuts and such; but couldn’t severe losses cause a chain reaction that ends up being worse than anything we’ve ever seen? I guess they would just change the rules of the game, again. Or..?

  5. Your last two posts were topical and very informative. However in your latest post I would suggest that the biggest issue is not moral hazard but the failure of regulation. I would pose the question as follows. Why did the rapid rise in interest rates leave the economy so unscathed up to now? Answer, because the banks were allowed to hide their losses enabling lending to continue. Had the regulators forced the banks to mark to market their holdings of shares, bonds and lest we forget, non-industrial commercial property, their capital ratios would have been so impaired they would have had to drastically cut down on lending. In such an environment they would also have had to claw back problematic loans and tighten up lending requirements. In all liquidity in the economy would have dried up quicker. So here we are. Shades of the run up to 2008 when losses were covered up. Capitalism learns nothing and forgets everything. The dementia of greed.

  6. Both Moral Hazard and Creative Destruction are not true scientific categories, let alone theories. They don’t deserve serious examination. They are and should be analyzed as what they really are: Cold War era fossils.

    The whole situation seems pretty straightforward to me: the USA is a financial superpower and, as such, it needs its financial system to reign supreme all the time in order for the very fabric of its society to continue to function. This is the material base of the so-called “American Dream”: that every single American has the divine right to be a white collar middle class member, whose material prosperity must automatically always be above that of every other middle classes around the world.

    Let’s say the Americans really take this regulation thing seriously and that this regulation really works. In that case, banks would not be lending to the American people nearly at the level they have been for the last decades. The American people would be poorer because they wouldn’t be able to consume as much.

    So, it really is a short blanket situation: if the Americans regulate their financial system, they will be poorer because the would not be allowed to consume more than they produce vis-a-vis the rest of the world (the euthanasia of the Dollar Standard); if they don’t regulate it, major structural crises will blow up on shorter and shorter cycles, until a final one happens, and the American people go back too be able to consume what they really deserve (i.e. they will be [much] poorer). Cover your chest, or cover your feet, but not both at the same time.

  7. How about neither moral hazard or creative destruction? First we should be paying attention to the changed circumstances of this insolvency– which is the investment by SVB in long term US Treasury, and US “guaranteed” mortgage instruments that the bank categorized as “hold to maturity”–generally a safe haven for bank funds– not subject to mark to market requirements when held to maturity. However the interest rate increases devalued this investment to the point where the paper loss could not be offset by hedging or swaps. SVB then had to “eat” the paper, accepting the markets’ devaluation and thus impacting its stock price, its “Tier 1” capital. The depreciation in stock price has been going on for about year, before trading was halted with a 80% depreciation.

    The libertarian free market mantra of the tech investors and owners already eating their own losses wanted the government to protect their deposits and those of their corporations from a run on the bank that they themselves initiated..

    This isn’t a Bernie Madoff type event, or even Bear Stearns or AIG– leveraged to the eyeballs on high risk, or completely fictitious instruments, but one where the security of US Treasury instruments was undermined by the need to devalue prices. As such the incident does present systemic risk to the bourgeoisie, and the demand for cash will increase.

  8. This time, the fed has to pick between a run on the banks and a run on the dollar. If the fed floods the market with dollars before a panic breaks out to stave off a run on the banks, money capitalists will dump their dollars and buy gold, the money commodity. The dollar system probably won’t survive and the us empire would crumble. This is what Sam Williams has been talking about. It is the correct crisis theory.

  9. Michael Roberts wrote:

    “In 1929 Mellon was undeterred. He advised the then president Hoover to “liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”

    This is reminiscent of Henryk Grossman who write:

    “We know that in Marx’s conception crises are simply a healing process of the system, a form in which equilibrium is again re-established, even if forcibly and with huge losses. From the standpoint of capital every crisis is a ‘crisis of purification’. Soon the accumulation process picks up again, on an expanded basis, and within certain limits…it can proceed without any disruption of equilibrium. But ‘beyond certain limits’…the accumulated capital again grows too large. The mass of surplus value starts to decline, valorisation begins to slacken until finally…it evaporates completely…The breakdown sets in again and is followed devaluation of capital…and so on. Henrk Grossman. “Law of the Accumulation and Breakdown.”

    1. By “crisis of purification” did the Gross man mean mass production of poisonous waste, genocidal wars, and ecological collapse? This kind of gibberish is typical of the crimally degenerate variety of moral hazzard of capitalist apologetics…

  10. It is a bail out in disguise. The new deposit insurance fund which is going to pay for the deposit guarantees is set up by banks, yet this will not be funded out of the profits of banks but be another round of debt fueled assets for which the taypayers will have to pay at the end of the day by higher credit costs or inflated mortgage values. It is just further inflating the bubble of finance’s fictitious capital. The protected uninsured customers are not ordinary people but the loans of venture capitalists who financed startups who in turn put this money into their accounts. So it is again a bail out of the big fish – finance and capitalists extracting value

  11. Capitalism is a historically limited mode of production because its recurring crises can only be resolved destructively. If by raising productivity the capitalists set in train a cycle that culminates in the destruction of part of the labour of society it has previously mobilised, then do away with it and introduce a mode of production where productivity, or what is the same thing the economising of labour time, may proceed harmoniously without disruption.

  12. Michael,

    Some pundit (whose name or organizational connection I can’t recall) pointed out that if the companies, their shareholders, CEOs, CFOs, Board Members et al. of successful start-ups represented a large fraction of depositors being made whole, American taxpayers might be casting a gimlet eye on the notion that this isn’t just another bailout for the privileged few.

    In this case, a great number of the privileged few being individuals and their companies in Silicon Valley who have been involved in some of the most ruthless, cutthroat forms of capitalist enterprise on the planet.

    I was also brought to wonder what happens if the collateral for the Bank Term Funding Loans the Federal Reserve is offering to eligible banking institutions, large or small, encounters any significant drop in value? So I asked Chat GPT,

    Is it possible for US treasuries, agency debt and mortgage-backed securities to lose substantial value due to unforeseen circumstances?

    In answer it provided a plethora of potential circumstances where that could occur, summarized thus:

    Overall, while US treasuries, agency debt, and mortgage-backed securities are generally considered to be low-risk investments, unforeseen circumstances can still lead to substantial losses. It’s important for investors to diversify their portfolios and understand the risks associated with any investment they make.

    From past actions in the banking sector, I am assuming there will be a stampede to access these funds and, like a lot of money flowing out of government’s generous coffers, there will be a great deal of money being used far outside the parameters intended, similar to the great Covid cornucopia’s fraud, waster and abuse.

    I would welcome your more nuanced observations in response to the generalizations of a man whose academic bona fides in economics started and ended in double-entry bookkeeping.

    Regards, Brian Waite Vancouver, BC (778) 871-9671 ________________________________

    1. I believe the Bank Term Lending Loans are new and distinct from the monies shovelled out of the Discount Window.

  13. This too: the Fed introduced a policy in March 2022 of not naming the banks using the discount window:

    “A measure taken to facilitate the use of the discount window without the effect of freezing the borrowing institution out of other lending markets is the introduction of a two-year gap between use of the window and the Fed’s public release of the names of borrowing firms.”

    “In about 18 months, the identity of the firms which have been tapping the Fed’s discount window starting in March 2022 will become publicly available.”

  14. We should be quite clear about the difference between the FED buying bank assets (QE) and lending to banks against their assets (discount window). The former facilitates bank lending the latter constructs it. Thus the emergency use of the discount window will not reverse the increasingly tight lending environment which is the main threat to the circulation of capital.

  15. Dear Michael Roberts

    I have read your article about the current crisis. I my opinion it is an eclectic analysis, and not a dialectical.
    To understand the full extend of the crisis, we have to see the changes in state monopoly capitalism, i.e. that we live in a new phase; the corporative state. This changes the conditions from previous crises and also the result of the crisis.
    We also have to define what type of crisis it is; an economic, a financial, a trade crisis, or a result of the capital accumulation.
    The third aspect of the crisis is the ongoing war in Ukraine, which makes the space of tackling the crisis even smaller than before. It is in a analysis of these areas that we can understand the present crisis.

    Best regards

    Lars U. Thomsen

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