Review of L. Randall Wray’s Book, “Modern Monetary Theory”
When the financial crisis hit Canada and the rest of the world in 2008, I wanted to know how such a crisis could happen. I began to read articles on the Internet that dealt with finance and found out a lot about how money works. Wray’s book evolved from a Primer he wrote for the blog, New Economic Perspectives (NEP), all of which I read and did not totally understand but I began to see what is really going on to cause the banks in Canada and the US to fail; fail, that is if they were not bailed out by government. Wray’s book is a basic book of economic information from a heterodox point of view.
I began to see how fraud played a big role in the financial crisis: mortgage lending fraud, securitization fraud, foreclosure fraud and so on.
Here’s an excerpt from Wray written for the NEP blog:
"Here’s the rub. Bank money is privately created when a bank buys an asset—which could be your mortgage IOU backed by your home, or a firm’s IOU backed by commercial real estate, or a local government’s IOU backed by prospective tax revenues.
But it can also be one of those complex sliced and diced and securitized toxic waste assets you’ve been reading about since 2008. A clever and ethically challenged banker (is there another kind?) will buy completely fictitious “assets” and pay himself huge bonuses for nonexistent profits while making uncollectible “loans” to all of his deadbeat relatives.
"The bank money he creates while running the bank into the ground is as good as the government money the Treasury creates serving the public interest. And he will happily pay outrageous prices for assets, or lend to his family, friends and fellow frauds so that they can pay outrageous prices, fueling asset price inflation.
"This generates nice virtuous cycles in the form of bubbles that attract more money until the inevitable bust.
"The amazing thing is that the free marketeers want to “free” the private financial institutions but advocate reigning-in government on the argument that excessive issue of money by government is inflationary.
"Yet we have effectively given banks the power to issue government money (in the form of government insured deposits), and if we do not constrain what they purchase they will fuel speculative bubbles. By removing government regulation and supervision, we invite private banks to use the public monetary system to pursue private interests."
See: http://neweconomicperspectives.org/2011/12/mmt-doubly-retrospective-analysis.html
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Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems
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Reviewed in Australia on June 7, 2015