Show host Gene Tunny interviews UMass Amherst Professor Gerald Epstein about his new book “Busting the Bankers’ Club”, which is about the powerful influence of banks in politics and regulation. Epstein argues the bankers’ club maintains control through political allies and regulators. The conversation also covers financial deregulation, insufficient Dodd-Frank reforms, Quantitative Easing impacts, and alternatives like public banking and non-profit financial institutions.
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About this episode’s guest Prof. Gerald Epstein
Gerald Epstein received his Ph.D. in economics from Princeton University, is a professor of economics, and is a founding co-director of the Political Economy Research Institute (PERI) at the University of Massachusetts Amherst. He has published widely on various economic policy issues, especially in central banking and international finance. His most recent book, Busting the Bankers’ Club: Finance for the Rest of Us, was forthcoming in January 2024 from the University of California Press.
What’s covered in EP226
- Banking industry’s influence in politics and regulation. (0:04)
- Financial deregulation and its impact on the economy. (8:58)
- Financial system’s impact on democracy and fairness. (13:24)
- Financial system issues and regulation. (16:24)
- Economic policy after the financial crisis, including impacts of Quantitative Easing. (22:50)
- Financial regulation and publicly owned institutions. (28:08)
- Public banking, crypto, and risk-taking in finance. (33:30)
Takeaways
Professor Epstein argues in this episode:
- The “bankers’ club” of allies including politicians, central banks, and economists helps sustain the power and influence of large banks.
- Financial deregulation in the US and weak Dodd Frank reforms failed to address issues like too-big-to-fail banks and accountability.
- Quantitative easing policies after the financial crisis disproportionately benefited wealthy asset holders over others.
- There is a need for more diverse public and non-profit financial institutions focused on social missions over profits.
- Crypto poses risks if it infects the core banking system or continues high-carbon polluting practices.
Links relevant to the conversation
Gerald Epstein’s book Busting the Bankers’ Club: Finance for the Rest of Us
https://www.amazon.com/Busting-Bankers-Club-Finance-Rest/dp/0520385640
Working paper co-authored by Prof. Epstein “Did Quantitative Easing Increase Income Inequality?”
Transcript: From Jekyll to Hyde: Exploring the Dual Nature of Finance | The Bankers’ Club w/ Prof. Gerald Epstein – EP226
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Gerald Epstein 00:04
There’s a phenomenon in the US. The political scientists talk about this called capture that is that the regulatory agencies that are supposed to be regulating the industry, artefact captured by the industry and tend to operate, often in the in the interests of the industry.
Gene Tunny 00:29
Welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the shownotes relevant information. Now on to the show. Hello, thanks for tuning into the show. My guest this episode is Professor Gerald Epstein. He’s professor of economics at the University of Massachusetts Amherst, and he’s co director of the Political Economy Research Institute. We discuss his new book busting the bankers club published by the University of California Press. It’s a great book demonstrating Professor Epstein’s deep knowledge of the US financial system. I thoroughly recommend it. So if you enjoyed this conversation, please consider buying a copy. I’ll put a link to it in the show notes. As always, please get in touch. If you have any thoughts on this episode, guest suggestions or ideas for how I can improve the show. You’ll find my contact details in the show notes. Right? Oh, we’d better get into it. I hope you enjoy my conversation with Professor Gerald Epstein. Professor Gerald Epstein, welcome
01:53
to the programme.
Gerald Epstein 01:54
Thanks so much for having me. Excellent. Gerald,
Gene Tunny 01:57
look, I’m really grateful for you appearing on the show to talk about your new book busting the bankers club finance for the rest of us. To start off with, could you tell us what is the bankers club?
Gerald Epstein 02:12
So the bankers Club is a group of allies, very powerful allies that support the banks and the financial Titans more generally. And the reason that’s important is because the banks in the United States in the book is mostly about the United States, but I think it’s true in many other places. They’re not very popular, people don’t like banks very much as a whole. I have my students look at a bunch of American movies about banks, they say, please find me a movie that has a favourable gives a favourable impression of the banks and, and they really can’t find them. So in the popular culture, you know, banks aren’t very popular, but they’re incredibly powerful. They’re in powerful politically, they’re powerful economically. And this is, despite the fact that we have these prices that the financial institutions seem to create every 10 years or so. And so the question is, how do they remain so powerful? And my answer is that it’s the bankers club is this group of allies that support the banks politically, economically, and helps them sustain their both economic and political power? And so I go into some detail discussion of various components or various groups within the bankers club,
Gene Tunny 03:37
broad and who are they? I mean, are you able to give some examples?
Gerald Epstein 03:42
She, of course, so there’s some usual suspects as you is what anybody would think about. So they’re the banks themselves and by banks, in this context, I mean, the mega banks, like Chase Manhattan Bank and Bank of America and the large banks, then the major hedge funds and private equity firms, and the large asset management firms. So we’re talking about mega finance more generally. So, of course, they’re the head of the club, but they get politicians to help them out, then that’s well known in the US and in other countries, and they get politicians to help them out by giving them campaign contributions by offering them good, lucrative jobs when they get out of the legislature. And in a variety of ways. They find finance friendly politicians, that will help them with legislation and so forth. So that’s kind of well known in many countries. Perhaps less well known is that the our central bank, Federal Reserve Board, is what I call the chairman of the club. The central bank, is historically Since it was founded in 1914, has been a big supporter of the banks. Partly this is for structural reasons that is, they rely on the banks, when they make their monetary policy they operate to the banks that interest rates, they expect the banks to pass these interest rate changes, up or down, depending on whether they’re fighting inflation or trying to get the economy going. So they have a kind of an intimate relationship with the banks. But what it also means, however, is that they tend to see the world through what I call finance coloured glasses. And so they tend to see the world the same way the bankers do. And more than that, they help out the banks in very significant ways. And we can see that most clearly in two areas. One is when they bail out the banks, like we have this great financial crisis of 2007 2008, and the Federal Reserve along with the US Treasury, but in trillions of dollars that keep the big bankers operating. But they also do it with regulation. That is they the Federal Reserve, and I think is true in many other countries, tends to really push for fairly flexible, and even very easy forms of regulation on the banks. And I’m very reluctant to put on very tough regulations on them. So we have politicians, the Federal Reserve, and then we have regulatory agencies, in the United States, we have various regulatory agencies that are in charge of regulating the banks. And there’s a phenomenon in the US, the political scientists talk about this called capture that is that the regulatory agencies that are supposed to be regulating the industry, artefact captured by the industry and tend to operate often in the in the interests of the industry. And once again, this is a process that goes on with financial regulation, the SEC, the OCC and other financial regulators we have, and I’m sure you have some in Australia. And we have the same revolving door processes that we have with the Fed. And then there are a couple of other groups that maybe are less well known. One is lawyers, many lawyers work for, for banks, they, they when they’re working in the regulatory agencies or in Congress, they help fashion regulation and and, and regulate and laws that help the banks. And they actually help write laws that are very bank friendly. And so we have a whole group of lawyers that are that are involved. non financial corporations, you think that one thing that I started during the Great Depression when this books my book starts talking about in talking about the Great Depression, and the New Deal financial regulation put into place by Franklin Delano Roosevelt and his administration. At that time, the big companies like us steel and the big industrial companies, they kind of parted way with the banks, the banks had helped crash the economy. And the big industrial companies said, Look, we need a new path. And they supported a lot of the financial regulation, like the Glass Steagall Act that separated for a commercial from industrial banks. But these days, our biggest corporations are very supportive of the banks, they don’t want to regulate finance. And so there many of them are members of the bankers club, too. And finally, I have to admit my own profession, economists, were very many of us are very me, but many are loyal members of the bankers club, become stuck with economic theories that say low regulation is best for society. Markets are efficient. They work better on their own, and this all works in the interests of the banks.
Gene Tunny 08:58
Yeah, yeah. Okay. Look, yeah, I think there’s definitely scope for discussion about the appropriate regulation of banks. That’s right. And we might get into that a little bit later. I’m just thinking about, you know, some of the people involved, I mean, often you hear their accusations levied against people like, was it Robert Rubin. And then Larry Summers, who were the treasury secretaries in the Clinton administration. That’s right. Is there a was there a concern that they were perhaps too close to, to the banks and that yes, yeah. Yeah.
Gerald Epstein 09:35
So Larry Summers, Robert Rubin. Alan Greenspan. They are, you know, golden members of the bankers club, all of them. The major deep financial deregulation that happened in the United States that kind of took apart the New Deal, structure of financial regulation. It happened. First, slowly building up. But then it really happened with the Big Bang. under President Clinton, who was a Democrat with the advice of Robert Rubin, who was chair of Goldman Sachs, and then city city Corp. Alan Greenspan, who was a libertarian, he was a follower of the philosopher Ayn Rand. And he was head of the Federal Reserve. And Larry Summers, who was a was was a very good economist, but somehow found himself kind of, as part of his part of the bankers club. And that was, that’s what really led us down the path to the great financial crisis. And to the problems we’re still having with banking. Yes,
Gene Tunny 10:39
yeah. It’s interesting, this idea the bank is clogged because it reminds me in Australia here, I mean, we’ve had successive treasury secretaries, that’s the head of the cabinet. First and responsible the Treasury is called the treasurer, that we’ve have successive treasury secretaries who have gone on to be the chairman of a bank. And I think for years that was seen as a pretty sort of cushy job. And it was until like, we had David Morgan who became head of Westpac, and then my old boss, Ken Henry ended up head of NAB, but for Ken ended up getting grilled at the Royal Commission into banking, and I don’t think he ever expected that that because we had a whole bunch of bad behaviour. Yeah, the bank’s due to a guest lacks oversight by our Prudential regulator. So absolutely. Same kind of thing. Yeah, yeah. Okay, so I think you’ve, you’ve given us a good description of the bankers club. What’s your case? Can you state your case, please, Professor Epstein, as to why the bankers club should be busted? Well,
Gerald Epstein 11:51
yeah, the title of the book is busting the bankers club finance for the rest of us. And the problem with the system as it is, is that our, our financial system has been has become incredibly bloated. It’s much too much too large. It uses way too many of our financial and human resources, it sucks in some of the best and the brightest of our young people, I can tell you, from my classes here at the University of Massachusetts, when I teach classes, a lot of our best and brightest students want to go into finance and banking. And they want to go in to the mega banks. And you know, the really the really lucrative ones. And there’s a whole literature, which I registered my built on, which is called too much finance. It’s an economics literature, which shows that its financial sectors get too large relative to the size of their economies. And this is a cross national study, that after a while, they’re they’re too big, or they’re structured inappropriately, or they’re doing negative things in the economy. And they actually contribute, after a certain point to lower economic growth, lower national income. And there’s something about having a bloated, an excessively large and complex financial system, which really harms everybody. So that’s, that’s one problem. But we have that’s just one of the problems. Another problem is that it’s bad for democracy that is, you know, Australia’s democracy, the United States is trying to risk to remain a democracy. And the idea is that it’s one person, one vote. But the process I’ve described, where the, these large institutions of powerful institutions are able to, by essentially legislation, regulatory practices that benefit them at the expense of the rest of society. That’s a major problem. But it’s, it’s even worse than that in the United States, because people understand that, that the whole process is unfair. When we had the great financial crisis, the Federal Reserve the Treasury, the government, and this was under both W Bush and Obama bailed out the banks. But they didn’t bail out the people, people lost their homes, people’s jobs were lost. And this made many Americans, understandably, very angry. And I think this turn to this very anti government kind of politics in the United States. That started with the so called Deep party at that time. And it’s now morphed into very, very extreme right wing populism that we had, that has kind of organised around and been organised by Donald Trump. Really stems I think, from this sense that our system is not fair. And so yeah, well understand that it’s not democratic. And I think it’s really poisoning our politics.
Gene Tunny 15:06
Okay, we’ll take a short break here for a word from our sponsor.
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Gene Tunny 15:41
Now back to the show. Well, I think this idea of this, too much finance literature, I’m gonna have to have a look at it or a closer look, I’ve seen some of it, I think. I mean, obviously, we need banks. Okay. I mean, we’re not necessarily any banks, because banks do play an important role in providing credit and supporting businesses. I mean, you asked most bankers, they will think they’re adding value to society. What are the activities where there’s this so called too much finance? I mean, how, like, what how does that manifest? Yeah,
Gerald Epstein 16:18
excellent question. Well, I start off my book with a chapter called the Jekyll and Hyde finance. It builds on this idea from the Robert Louis Stevenson story, which some some of your listeners might have heard of, this very upstanding doctor, Mr. Dr. Jekyll, who was a pillar of the community and really supported the committee and did all kinds of things with it. But we had another base hidden inside of him, this Mr. Hyde, who was who was a criminal, and murderous, and so forth. And, and these different phases of this one entity would show itself depending on on the conditions. So our financial system is kind of like that, you’re absolutely right. We need a financial system that works for the everybody that works for the economy, we need to be able to finance people’s retirement be able to finance people’s ability to buy homes, we need to finance credit for businesses to invest in new plant and equipment. And the list goes on and on and on. The problem is that our current financial system in the United States, which I call roaring banking, it’s kind of comes from the bill boring banking idea of the 1950s and 60s that was very regulated, and morphed into roaring banking as a result of this deregulation, it led this financial markets and these big financial institutions to engage in more speculation taking on more and more risks, to invest in speculative bets and derivatives and other kinds of speculative activity. Yeah, and it resulted in them taking on much more risk, which allowed them to increase the profits and wages, going to the major investors, and to those at the top, without, at the same time, investing a lot in in new plant and equipment for businesses and so forth. In the United States. Many big corporations do not rely on the banks or even the financial markets for their major investments, they get most of the financing from the major investments from their own retained earnings, their own profits. And so it raises the question, well, what are these these big banks, hedge funds, private equity funds, what are they really doing? And many of them are not really supporting the real needs of the economy. In the United States, we have a lot of smaller banks and community banks. And they’re the ones who are much more likely to give home mortgages to give to lend to small businesses, and so forth. And the problem is, in the United States, we have a particular system, your system is different in Australia, what we have is these very speculative mega banks that are driving out to smaller banks. Part of the reason that happens is that when there’s a financial crisis, our government has a too big to fail policy. That means if you’re a really big bang, chances are you’re gonna get bailed out by the government. Whereas if you’re a mid sized or smaller bank, and you get in trouble, you’re not going to get bailed out or you’re gonna go bankrupt or get merged into another bank. And so depositors and investors don’t feel that safe, putting their money in the smaller banks. They Put them in the big banks as well. So the cost of capital for the smaller and community banks is higher, because of the too big to fail subsidy that the big banks get. So it’s an unfair competition. And it’s not a one of the things that I propose in the book is a set of policies that help make this competition, more level more, more fair, so that we have a whole variety of financial institutions that provide the needed services, as you said, that our economy needs. Okay.
Gene Tunny 20:36
Now, in your book, you talk about issues with mortgage backed securities, I suppose one of the things that people, you know, they were most critical of some of these major investment banks was there, you know, they’d be packaging up, or creating these mortgage backed securities and then selling them around the world. But at the same time, I forget which firm it was, but was one of the banks betting against products that was actually selling or one arm of Goldman Sachs. Yeah, Goldman Sachs was one of them. Yeah. So it’s, it’s,
Gerald Epstein 21:09
you know, it’s not really taking care of your clients. And it’s really betting against your own clients. And that’s kind of one example of a behaviour that this all allowed. Yes. Yeah.
21:23
And another. Another good point I think you make in the book.
Gene Tunny 21:29
And this gets to the fact that you argue that the Federal Reserve is at the head of the bankers club, you talk about the impact on of quantitative easing and the the adverse, or the unfair impacts of that. Could you elaborate on that, please? Professor Epstein.
Gerald Epstein 21:47
Yeah. So when the great financial crisis hit Central, the Federal Reserve and other central banks, were trying to revive the economy, understandably, that’s what they should have been doing. Interest rates were already in almost zero. So they wanted to come up with another tool to put liquidity in the in the economy and reduce the cost of investment, cost of capital and so forth, while helping to sustain the banks that were in trouble. So they engaged in what’s called quantitative easing. They put liquidity in the economy by buying up not just government securities, which is the typical way that they do open market operations. But they bought up asset backed securities, mortgage backed securities, this kind of thing from banks, which ended up increasing the value of these assets, which helped the banks because they had these, these assets on their balance sheets were which were not worth very much. So it helped the banks. But the the idea is that it was there hoping that it would also lower the cost of capital to borrowers and investors, and then to generate more employment, and so forth. So my graduate students, and I looked at whether what the impact was in the United States. So there could have been, there was this asset in value increase, which increases the wealth of asset holders, the banks and others, there was cost of capital mechanism that would have possibly lowered the cost for homeowners and others who were borrowing money. And then there was the impact on the interest rates that the consumers get on their savings in banks and banks. So we had a various impacts going in opposite directions, the asset value increase, we’re going to help the wealthy people because they’re the ones who have all the assets, reducing the cost of capital, would help those homeowners who needed to get their mortgage cost down. And the lowering of interest on savings might have hurt middle class and working class people because they hold their money in savings in the bank. So we have these different possible impacts. So we tried to figure out what the net effect was. And what we found was that in the case of the United States, during this period, the main impact was on increasing the wealth of the wealthy, that the other impacts were relatively modest. So there have been other studies of quantitative easing in other countries during this period, and most of them find something similar that it had a relatively small impact on employment and cost of capital for borrowing and a much bigger impact on the value of assets which helped primarily the wealthy. There’s some counter studies, but most of them go in that direction. Now. It’s not necessarily the case. But we weren’t arguing that the Fed was trying to do that, per se. I I think they would have liked to have seen the economy get going more. But that was the impact of the policy that they pursued.
Gene Tunny 25:05
Yeah, yeah. Okay. Why was Dodd Frank? So there were there were some changes to legislation, post financial crisis. So as a result of the financial crisis, why were they insufficient. So Dodd Frank in particular,
Gerald Epstein 25:22
right, so what what really needed to happen after the financial crisis, in my view, and in the view of other others who were looking for some big changes, first of all, these mega banks, Goldman Sachs, the Bank of America, and so forth, they’ve gotten too big to fail, too big to manage. Oftentimes, the people at the top didn’t really understand what the heck they were doing. The big jail that is, the government didn’t even put any of these people who ended up taking on fraudulent activity, they never made them have any consequences at all. So they were just too big. And so there were proposals during the Dodd Frank process, to shut down these big banks that one was to implement a new Glass Steagall Act, which was kind of a modern version of the separating commercial and investment bank, another was putting an asset cap on these banks to try to get them into a size that couldn’t run the economy that can be managed better, and so forth. That was never put on the table. Another thing that the some of us argued for, were consequences for the bad behaviour of the decision makers or the wrong decision makers. When these Goldman Sachs was selling these securities to their clients and betting against them. And then they they made a lot of bonuses and profits, and then the bank threatened to collapse. They didn’t have to give back their salaries, they didn’t have to give back their bonuses, they were able to take the money and run, there were attempts to put in so called law backs into the Dodd Frank legislation. So that we didn’t have moral hazard that is, so we didn’t have a situation where people didn’t have to pay the consequences of their bad behaviour. That was never really put in as in in a significant way. There were conflicts of interest all over the place, including with credit rating agencies, we had the credit rating agencies that were rating the securities, the asset backed securities and so forth, that were full of really dicey mortgages, they rated them leave parts of them triple A, which is this, which is the same as the US government securities, triple A ratings. And why? Well, because the investment banks demand that they rate them triple A, the veteran banks paid the rating agencies, if they didn’t rate them, triple A, then the investment banks would take their business elsewhere to another rating agency. So there are all these kinds of conflicts of interest. They weren’t really dealt with either the list could go on. We needed more regulation for derivatives, derivatives are relatively unregulated. And again, there wasn’t much done there is Well, the question is why? Why wasn’t there better regulation? And the answer is bankers club. Dodd and Frank were both very weak members of they had very kind of weak backbone for really taking the banks on both Republicans and Democrats in the Senate and the House of Representatives. Many of them were were on the take from the banks. Tim Geithner, who was Treasury Secretary, Larry Summers, we talked about before Ben Bernanke, head of the Fed, they didn’t really want to shake up the financial system. They just wanted to get it back up and running again. So the bankers club really did a number on Dodd Frank. Now, there were a few things that were done, and they were good, but they weren’t enough.
Gene Tunny 29:08
Yeah, okay. Okay. And did Trump do anything when he was in office?
Gerald Epstein 29:12
Yeah, Trump’s an interesting story. He ran on a platform when he was running against Hillary Clinton, a very populous platform, who said, All the banks are terrible. They really messed everybody up. Probably Clinton makes money from the banks as she terrible. I’m really going to do a number on the banks. But then when he was elected, he immediately put a bunch of Goldman Sachs people in his administration. And he appointed people to try to dismantle the Dodd Frank Act. And among the things that they did was to raise the size that banks could get before they were subjected to special capital requirements or liquidity requirements. The so called mid size banks, were set free to kind of do what they want and The result of that is we had the Silicon Valley Bank that went under, in 2023. Because they were a bank that had been subject to special reg regulation. Under Trump, they were, they were let go and not have had to be subject to this regulation. And they got in trouble. In the end, the government had to bail out the financial markets again. So the question is, you know, what would trump do if he got into power? Again, you know, it’s probably going to be a similar story, where he’s going to rail against the wealthy and the banks and so forth. But chances are, they’ll do more of the same and it will be kind of this the supreme member of the bankers club if he ever gets back into office. Okay. Do
Gene Tunny 30:43
you see a greater role for publicly owned financial institutions?
Gerald Epstein 30:47
I do. And so it’s time I think, to raise the point of about the others theme in my book, I talk a lot about the bankers club. But I also talk a lot about group I call the club of busters. That is, there are many legislators like Elizabeth Warren and others in our in our government, there are activists, there are economists and lawyers and regulators, who really do want to try to do the right thing. They really do want to try to regulate the financial institutions properly, and are pushing for legislation and regulation to do so Gary Gensler, for example, the head of the SEC, really wants to regulate crypto very strictly, as an example, is giving the crypto people a lot of headaches. He’s a member, he’s what I call a club buster. And what we need, I think, not only tighter regulations, and this is what most people argue for, but we need a whole ecology a whole set of public financial institutions. Now by public, I don’t necessarily mean government owned. But what I mean is financial institutions that have a public orientation, that is making the maximum profits is not their only goal. It’s not their goal. They have missions, public mission, social missions. So some of them can be owned by the government. And the United States, we have some community banks, state banks, and so forth. There are many government owned banks around around the world, but they can also be public private partnerships. They can even be privately owned, nonprofit, non nonprofit nonprofits, who have a social mission. We need many more of these financial institutions to provide low cost mortgages, and loans for small businesses, investment in deprived communities that need more investment, help with transition to a greener economy, at the local level, and the regional level. So we need what I call banks without bankers, that is, banks who don’t have typical bankers in them, they have to have skilled people, technically competent people. But for whom maximising profits is not the main goal. And in the United States, we have a very active public banking movement of activists around the country pushing for public banks of various kinds. Their major obstacles, like once again, is the bankers club who was trying to prevent them from from succeeding, but they’re, they’re these bank posted this quote, officers are working very hard.
Gene Tunny 33:29
Gotcha. Okay, I’ll have to look into that public banking movement. That’s interesting. I like your point that, look, it doesn’t necessarily have to be publicly owned, because like where I’m coming from, as in Australia, we’ve had some, we had some really colossal state bank collapses in the late 80s, early 90s, tri continental state bank of Victoria, and Bank of SA South Australia, if I remember correctly, so we’ve got a bit of a, an aversion to publicly owned banks here, because of the risks to the balance sheets. I liked how you describe that. And I think I’ll have to look more into that at public banking movement. It looks interesting. The one concern I would have is, is there a concern? Is there a risk that maybe, maybe they’re too cautious or they’re not innovative enough? Have you thought about that? Right?
Gerald Epstein 34:16
So, you know, there’s, there is an upside and a downside. As a graduate student, I study the cyclical behaviour of publicly oriented banks in different countries relative to the purely private for profit banks. And what we found was that they were much less cyclical that is they went up much less than the upside and went down much less on the downside. So it’s can be a stabilising force in the economy. But I think what you’re going to getting errors don’t we need some you know, real risk takers and people who are really good, willing to go out on the limb with some some crazy but maybe great ideas. Take the risks and we Absolutely do need that in a dynamic economy. The problem is, what we don’t want is the government backstopping that we don’t want the government saying, you when you gain, you lose, we pay. We don’t want a kind of lemon socialism. So, yes, we need a risk takers, and and they have to pay the consequences if it doesn’t work out. Yeah,
Gene Tunny 35:24
yeah. Yeah, that’s a good point. I mean, that was one of the points that came up during the financial crisis that they were privatising the profits, but socialising the losses. So exactly. That’s a that’s a good point. Right. Okay. Well, to finish up, we might, I might ask you about crypto because in your book, you talk about Jekyll and Hyde. You write just as finance, as both Dr. Jekyll and Mr. Hyde face crypto has a bit of a Dracula quality as well. Could you tell us more about that, please.
Gerald Epstein 35:56
So if anybody who’s followed crypto or invest in it, they know, they know that there was a big bubble and Bitcoin and other cryptocurrencies and 2122. But there was the so called crypto winter, and when the crypto values just, you know, collapsed, and then there are all kinds of scandals with sand bank and freeze in jail and several the other main crypto people are in are subject to criminal investigation, or maybe are in jail. So it seemed like around that time, the crypto was dead. But like the vampires you stick across in them, and they somehow, you know, they revive and now crypto I think, has has had a revival. It’s still trying to push ahead. And there are a lot of crypto friendly legislative leaders in the US and in other countries. And so it’s like, yeah, we all thought it was was dead, but it’s risen from the dead. And my view on crypto, is that again, it’s fine. It’s like, it’s fine if people want to mess with it, you know, in line and death, you know, gamble with it, and so forth. But we can’t let it do two things, one, either of two things. One is infect core banking system. Once we have crypto infecting the core banking system, we’re back to where we were in 2007 2008, when these exotic asset backed securities and collateralized debt obligations, and so forth, infected the very core of the banking system. So when they collapse, they threaten to bring down the banking system with it. As long as it’s a marginal thing. Have fun with it, I suppose, as long as people are aware of the the downsides, but there’s another problem. Most crypto is very carbon intensive, the crypto mining, it’s very bad for our environment, we have this, this existential threat of climate change. And the way crypto mining is done in most cases, not all cases now. It’s really adding as much carbon to the atmosphere as a small country like Iceland or some other country. So I think that has to be taxed. And if crypto can still you know, give some thrills to the its investors in a safe way without destroying the environment. Okay, go for it. But let’s not let it ruin the environment. And it let’s not let it infect our our core banking system. Yeah, very good points.
Gene Tunny 38:27
Okay. Professor Epstein, any final points? Before we wrap up? I think this has been a great conversation. And I did enjoy reading your book. And I’m going to recommend it. And I’ll put the link in the show notes. Any final points before we wrap up?
Gerald Epstein 38:42
Yeah, the final point is that was one of the things that’s kind of obvious from our conversation, my book is, is almost entirely about the United States. So whatever, if these processes happen elsewhere, it will happen in a different way. There have been people doing work in similar kinds of work in other countries, we have Nicholas Shaxson, who’s done interesting work in in England, and we have Jim Stamford, who you might know who is then actually work in Australia and Canada. So I don’t claim that this is a universal process. But But I do hope that other people explore some of these ideas in their particular countries in particular environments to see what’s similar and what’s different.
Gene Tunny 39:21
Absolutely. Okay. Professor Gerald Epstein, thanks so much for your time. I really enjoyed the conversation.
Gerald Epstein 39:26
Thank you very much.
Gene Tunny 39:29
Right. Oh, thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact at economics explore.com Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you then please write a review and leave a rating thanks So listening, I hope you can join me again next week
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Credits
Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.