Gerald Epstein, UMass Amherst economics professor and department chair, comments in an editorial about large bonuses for Wall Street executives and what impact such payments have on the larger economy. Epstein says, “These things don’t add to the pie. They redistribute it – often from the taxpayers to banks and other financial institutions.” (STLtoday.com, 12/10/10)
Gerald Epstein, UMass Amherst economics professor and founding co-director of the Political Economy Research Institute, and Jessica Carrick-Hagenbarth, UMass Amherst economics Ph.D. student, examine the conflict of interest that can occur when academic financial economists, presumed to be objective experts, fail to report their private financial affiliations in the course of their public discourse in the media. The authors look at these linkages in the cases of nineteen academic financial economists, and assess the impacts that these conflicts may have had on the economists’ proposals for financial reform policy.
>>Read media coverage of this study in the Boston Globe, New York Times and on NPR
>>Download “Financial Economists, Financial Interests and Dark Corners of the Meltdown: It’s Time to Set Ethical Standards for the Economics Profession”
>>Read a related essay, “Conflicts of Interest and the Financial Crisis”
Arin Dube (& Ethan Kaplan, Columbia University)
A Spatial Approach to Macroeconomic Inference
Many of the most important questions in contemporary macroeconomics have proven elusive and thus have yet to be answered in a convincing way. This is in part due to heavy reliance by empirical macroeconomists on time series variation of economic aggregates to find answers.
The project will be conducted through three separate research projects with a common methodological approach using spatial cross-sectional variation in addition to time series variation to identify effects. The projects will focus on: (1.) estimating fiscal multipliers, (2.) estimating the impact of anti-predatory lending laws on housing prices, default rates and foreclosures, (3.) estimating the impact of raising wages during recessions. The end product of the project will make both methodological and substantive contributions to modern macroeconomics.
Gerald Epstein & James Crotty
How Big is Too Big? What Should Finance Do and How Much Should It Be Cut Down to Size?
The financial sector has grown significantly over the last several decades and some have suggested that the sector is now too big. Yet we have no obvious theoretical framework nor clear metric to measure the social usefulness of financial activities to help us determine the desirable size of the financial sector.
Building on James Tobin’s concept of “functional efficiency,” this project will develop new micro and macro data sets to: 1) estimate the size of “functionally inefficient” financial activity and to 2) estimate the share of financial innovations that are “socially inefficient.” We will then utilize these data sets to study the impacts of financial regulations, financial taxes and other safety enhancing financial measures that affect the level of “functionally efficient” finance. Finally, we will study the impact of financial size on political capture, and then add those impacts to the study of the socially desirable size and character of the financial system.
Gerald Epstein, UMass Amherst economics professor and chair, co-director of the Political Economy Research Institute (PERI) and co-coordinator of the Economists’ Committee for “Stable, Accountable, Fair and Efficient Financial Reform” (SAFER), has joined The Triple Crisis Blog as an active contributor.
His recent contribution, “U.S. Financial Reform: The end of the beginning, or simply the end?” discusses the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, labeled by the media as “the most sweeping financial reform since the Great Depression.” However, many economists do not feel that enough was done to protect tax payers or, for that matter, to end “too big to fail” banking. Instead, they are viewing the reform act as round one, contending that round two should continue to push forward the ideas that were blocked or defeated in round one.
Gerald Epstein, economics and co-director of the Political Economy Research Institute (PERI) and Jane D’Arista, PERI, offer comments on efforts in Congress to bring more regulation and transparency to derivative trading by large banks. They support such moves and say it is a key to meaningful reform of the financial sector. (Firedoglake.com, 5/10/10)
A column promoting breaking up large banks cites research done by Gerald Epstein, James Crotty and Iren Levina, Political Economy Research Institute, on financial industry concentration. Their research shows that between 1993 and 2009, the top five commercial banks in the U.S. went from having 16.56 percent of total bank assets to 45.23 percent. The top five investment banks had 36.43 percent of overall revenue in 1993 and 65.61 percent by 2009, they say. (Huffington Post, 5/5/10)
Gerald Epstein, professor and chair, economics, comments in a story about what is and isn’t in the financial regulations bill that is expected to pass the U.S. Senate soon. One thing missing from the new federal law is a way to control the credit ratings agencies that are supposed to accurately gauge the risk associated with investments. He calls for an indirect method of paying these agencies to remove the conflict created when banks create investment vehicles and then pay for the ratings agency. (Marketplace [NPR], 4/23/10)
Gerald Epstein, UMass economics professor and co-director of the Political Economy Research Institute (PERI), is a member of the group SAFER, an organization that supports the Volcker policy. This policy was brought forth by the Obama administration for the purpose of reducing financial recklessness among big banks. With this new policy, large banks would be prevented from conducting their own proprietary trading and owning hedge funds. However, Epstein remains skeptical that the policy will not have a tangible impact on the way large banks operate. He claims that it would require political magic or “a big push from the Obama administration” to actually implement.
Maybe Jamie Dimon and his colleagues at JPMorgan Chase (JPM: 40.87, 0.85, 2.12%) didn’t get the memo: the Obama administration wants to prevent another financial crisis by reining in Wall Street risk and putting an end to banks that are “too big to fail.”
The administration hopes to achieve this through the so-called Volcker rule, which seeks to limit risk by barring banks that accept government-backed deposits from conducting their own proprietary trading and from owning hedge funds.
Named for former Federal Reserve chairman and current top Obama economic advisor Paul Volcker, the proposal was unveiled last month, and the White House is pushing for its inclusion in the broad financial reform legislation slowly winding its way through Congress.
Almost immediately, key members of Congress expressed skepticism for the rule, notably Senator Chris Dodd, D-Conn., chairman of the banking committee that is overseeing financial reform.
European leaders earlier this week publicly denounced the proposal, saying it ran counter to Europe’s fiscal interests and that it doesn’t reduce risk, just moves it somewhere else.
Then on Tuesday JPMorgan, the second biggest U.S. bank, got a little bigger by slapping down $1.7 billion for – naturally – a proprietary commodities trading business owned jointly by Sempra Energy and Royal Bank of Scotland (RBS: 11.13, 0.41, 3.82%).
Speculation quickly arose as to whether Dimon, JPMorgan’s CEO, was sending a not-very-subtle message to the president.
“Is it possible that JPMorgan Chase does not see these proposed rules and laws going into effect for any sustained period or perhaps not at all,” asked influential banking analyst Richard Bove of Rochdale Securities.
Bove went on to praise Dimon for a “courage sorely lacking elsewhere among other leaders of American banks.”
To read more, please go to http://www.foxbusiness.com/story/markets/widespread-skepticism-volcker-rule/
Gerald Espstein, UMass Amherst economics professor and co-director of the Political Economy Research Institute, was recently interviewed by The Real News Network. Epstein discusses solutions to the problems created by large amounts of capital and the speculation it creates that isn’t connected to the everyday economy. Alternatives to our current financial system, Epstein suggests, could include publicly controlled or oriented financial institutions that are engaged in credit for real investment, as well as democratizing the Federal Reserve.
(The Real News Network, 1/27/10)
Sick of being trampled by the big boys ridin’ their bulls and bears? SAFER was founded by UMass Econ Chair Gerald Epstein and Jane D’Arista to bring sanity and safety to the financial system.
Economists’ Committee for Stable, Accountable, Fair and Efficient Financial Reform (SAFER)
The Economists’ Committee for Stable, Accountable, Fair and Efficient Financial Reform (SAFER) is a focal point, clearinghouse and coordinating mechanism for progressive economists and analysts to gather and present their views on financial re-regulation and reform; to reach, to the degree possible, a consensus on the key issues relating to regulation and reform; and to help incorporate this work into the public debate over these issues that will ensue over the coming six to nine months or so. By bringing these analysts together to speak in a concerted voice, we will be able to broaden the perspective on financial regulation and reform, and enhance our impact on this public debate.