"It is easy to confuse what is with what ought to be, especially when what is has worked out in your favor."
- Tyrion Lannister

"Lannister. Baratheon. Stark. Tyrell. They're all just spokes on a wheel. This one's on top, then that's ones on top and on and on it spins, crushing those on the ground. I'm not going to stop the wheel. I'm going to break the wheel."

- Daenerys Targaryen

"The Lord of Light wants his enemies burned. The Drowned God wants them drowned. Why are all the gods such vicious cunts? Where's the God of Tits and Wine?"

- Tyrion Lannister

"The common people pray for rain, healthy children, and a summer that never ends. It is no matter to them if the high lords play their game of thrones, so long as they are left in peace. They never are."

- Jorah Mormont

"These bad people are what I'm good at. Out talking them. Out thinking them."

- Tyrion Lannister

"What happened? I think fundamentals were trumped by mechanics and, to a lesser extent, by demographics."

- Michael Barone

"If you want to know what God thinks of money, just look at the people he gave it to."
- Dorothy Parker

Saturday, July 19, 2014

education "reform"

Education "reform" is a lot like welfare "reform."

Divide and conquer. Scapegoat.

Neoliberals support a safety net they say, but they make the "efficiency" argument over government, budgets and the private sector. They give in to business's Kalecki move to have investment and employment depend on them.

It's why Republicans focus on community banks at the FMOC rather than government and the unemployed.

Friday, July 18, 2014


Gaza reminds me of John Carpenter's Escape from New York, just a giant open air prison camp on the Mediterranean with the west side manned by Egypt's military dictatorship and the rest by Israel.

Escape From New York
Escape from New York is a 1981 American science fiction action film co-written, co-scored, and directed by John Carpenter. The film is set in a then-near future 1997 in a crime-ridden United States that has converted Manhattan Island in New York City into a maximum security prison. Ex-soldier Snake Plissken (Kurt Russell) is given 22 hours to find the President of the United States, who has been captured by prisoners after the crash of Air Force One. 
Carpenter wrote the film in the mid-1970s as a reaction to the Watergate scandal, but proved incapable of articulating how the film related to the scandal.[citation needed] After the success of Halloween, he had enough influence to get the film made and shot most of it in St. Louis, Missouri.[3] The film is co-written with Nick Castle, who already collaborated with Carpenter previously by portraying Michael Myers in the 1978 film Halloween
The film's total budget was estimated to be $6 million.[2] It was a commercial hit, grossing $25,244,700.[2] It has since become a cult film.


Germany is Weltmeister by Roger Cohen
Perhaps German success is the result of the immensity of past German failure. I think that has something to do with it, even a lot. Whatever its roots, German success is important and instructive. 
If you talk to business leaders of the German Mittelstand, the small and medium-sized companies at the heart of the country’s economy, you are transported to another world. You sit in stark boardrooms, so devoid of indulgence they resemble classrooms, with unassuming people leading billion-dollar companies, and they speak of loyalty, 10-year plans, prudence and quality. If one word induces a look of horror, it is debt. The notion of making money with money, of financial engineering rather than engineering itself, is alien. 
Joachim Löw, the German coach, spoke before the final of the careful building of his youthful side: “We can play on top of the world for a good few years yet, with some young players coming in to reinforce the team.” Inevitably, the idea of Germany “on top of the world” for a long time conjured up images the phrase would not evoke for another country. Even a victory dance by members of the German team turned into a national debate because it was seen by some as unseemly mocking of the gaucho Argentine. The president of the DFB apologized. 
Germany is now soccer’s “Weltmeister,” a composite word composed of “world” and “master.” It deserves the honor. Its society has much to teach others. But restraint will be its watchword.


market monetarism

Understanding the Crank Epidemic by Krugman
James Pethokoukis and Ramesh Ponnuru are frustrated. They’ve been trying to convert Republicans to market monetarism, but the right’s favorite intellectuals keep turning to cranks peddling conspiracy theories about inflation. Three years ago it was Niall Ferguson, citing a bogus source. Ferguson was widely ridiculed, by moderate conservatives as well as liberals — but here comes Amity Shlaes, making the same argument and citing the same source. The “reform conservatives” have made no headway at all. 
Why this lack of progress? 
The answer is that inflation paranoia isn’t a simple misunderstanding that can be corrected by pointing to evidence. It’s deeply embedded in the modern conservative psyche. Government action must, by definition, have disastrous results; and whatever market monetarists may try to say, their political comrades will continue to lump monetary policy in with fiscal stimulus and Obamacare. And fiat money can’t work — Francisco D’Anconia said so, and it must be true. So it’s always the 70s, if not Weimar, and if the numbers say otherwise, they must be cooked. Evidence has a well-known liberal bias. 
Even the rare conservative willing to admit that we don’t yet have high inflation won’t admit that this suggests something wrong with models that predicted a huge inflation surge. No, it’s just a miracle
So market monetarism isn’t going anywhere, politically. It was conspicuously absent in the Eric Cantor-sponsored book of supposed new ideas — and Cantor himself was knocked out of Congress by a faith-based Randite (which doesn’t make sense, but sense also has a well-known liberal bias.) 
Sorry, guys, but you have no home.
 And he doesn't mention Taylor's push to end the Fed's independence.

"You're the Worst"

AV Club reviews You’re the Worst: “Pilot”
You’re the Worst can be forgiven for a few of these missteps because it nails the subtext of its premise: Jimmy and Gretchen may think they’re the worst, and they sometimes do things that earn that title, but in reality, they’re not so bad. They put up plenty of defenses because they’re bitter and scared, and they act toxically because their lives are filled with uncertainty, but that makes them more normal than they realize. Their folly is rooted in believing they’re alone in that struggle, which ultimately leads them into each other’s beds. Jimmy and Gretchen aren’t the worst, they’re just human. So far, anyway.
  • Falk threads a very tight needle with Edgar as he allows his humor come from his eccentricity, which is a result of his PTSD, rather than the PTSD itself. Borges also sells the writing really well, especially his delivery of his “real problems” line: “Like, the nightmares, and the crying, and how I want to do heroin all the time.”
  • Edgar and Jimmy have my favorite exchange in the pilot: “I was defending our country.” “Oh, please. You weren’t defending anything except for the business interests of evil men.” “Jimmy, our country is the business interests of evil men!”
  • Jimmy’s rant to Killian about the difficulties of adulthood is pretty great: “I’m an adult. Do you know what that means? It means that I’m beset upon at all times by a tsunami of complex thoughts and struggles, unceasingly aware of my own mortality, and able to contemplate the futility of everything, and yet still rage against the dying of the light.”
  • “Getting married doesn’t remove you from the burden of having to act like a human being.”

Thursday, July 17, 2014

Will Voters Make Mitch McConnell Pay for His About-Face on Medicare? by Brian Beutler
So the record here is crystal clear. It's almost as clear as his position on the Affordable Care Act, which is that it should be repealed "root and branch." But in Kentucky, that would mean eliminating the state's popular insurance exchange, Kynect, and its successful Medicaid expansion. So McConnell is also trying to disclaim that position as well, suggesting—again, not credibly—that Kentucky could keep all of Obamacare's goodies even if Republicans repeal the law in its entirety. That swindle would be impossible to perpetrate under most circumstances, but McConnell's managed to pull it off because the Grimes campaign doesn't really want to make Obamacare an issue, even when they can use it to press their own advantage.

If you follow domestic politics closely, this is pretty disorienting. Its reminiscent of Mitt Romney's first debate with President Barack Obama, when he disavowed the fiscal agenda that defined his candidacy. At the time, Obama aides cited that about-face as one of the reasons Obama performed so poorly that night.

That strategy backfired on Romney as the campaign wore on. The question now is whether it'll backfire on McConnell—if not for what it suggests about his forthrightness than for what it says about his effectiveness as a potential majority leader.

Repealing Obamacare and implementing the Ryan budget is what the GOP exists to do. And if the top Republican in the Senate won't defend his party's positions politically, there's every reason to suspect the party itself wouldn't be able to execute on the vision, if ever given the chance.

asset price "inflation"

"Asset price inflation" is not inflation by Noah Smith

Wednesday, July 16, 2014

Fed and community bankers

Irwin tweets:
Lawmakers obsessed with getting a community banker on Fed board. Fed watcher/monetary types utterly indifferent on this.
Maxximilian Seijo:
Republicans keep asking about community bankers rather than the unemployed.
Should Janet Yellen Be Giving Us Stock Picks? by Neil Irwin

asset prices and monetary policy

Seems like Richard Fisher has been reading @Neil_Irwin without understanding him:

To get a sense of some of the effects of excess liquidity, you need look no further than Neil Irwin’s front-page, above-the-fold article in the July 8 issue of the New York Times, titled “From Stocks to Farmland, All’s Booming, or Bubbling.” “Welcome to … the Everything Bubble,” it reads. “Around the world, nearly every asset class is expensive by historical standards. Stocks and bonds; emerging markets and advanced economies; urban office towers and Iowa farmland; you name it, and it is trading at prices that are high by historical standards relative to fundamentals.” Irwin’s comments bear heeding, although it may be difficult to disentangle how much these lofty valuations are distorted by the historically low “risk-free” interest rate that underpins all financial asset valuations that we at the Fed have engineered. 
I spoke of this early in January, referencing various indicia of the effects on financial markets of “the intoxicating brew we (at the Fed) have been pouring.” In another speech, in March, I said that “market distortions and acting on bad incentives are becoming more pervasive” and noted that “we must monitor these indicators very carefully so as to ensure that the ghost of ‘irrational exuberance’ does not haunt us again.” Then again in April, in a speech in Hong Kong, I listed the following as possible signs of exuberance getting wilder still: 
The price-to-earnings, or P/E, ratio for stocks was among the highest decile of reported values since 1881;
The market capitalization of U.S. stocks as a fraction of our economic output was at its highest since the record set in 2000;
Margin debt was setting historic highs;
Junk-bond yields were nearing record lows, and the spread between them and investment-grade yields, which were also near record low nominal levels, were ultra-narrow;
Covenant-lite lending was enjoying a dramatic renaissance;
The price of collectibles, always a sign of too much money chasing too few good investments, was arching skyward. 
I concluded then that “the former funds manager in me sees these as yellow lights. The central banker in me is reminded of the mandate to safeguard financial stability.”[1] 
Since then, the valuation of a broad swath of financial assets has become even richer, or perhaps more accurately stated, more careless. It is worrisome, for example, that covenant-lite lending has continued its meteoric revival and has even surpassed its 2007 highs.
But while central banks can set the short-term interest rate, over the long run rates reflect a price that matches savers who want to earn a return on their cash and businesses and governments that wish to invest that savings — whether in new factories or office buildings or infrastructure.
In this sense, high global asset prices could be the result of a world in which there is simply too much savings floating around relative to the desire or ability of businesses and others to invest that savings productively. It is a reassertion of a phenomenon that the former Federal Reserve chairman Ben Bernanke (among others) described a decade ago as a “global savings glut.” 
But to call it that may not get things quite right either. What if the problem is not too much savings, but a shortage of good investment opportunities to deploy that savings? For example, businesses may feel that capital expenditures are unwise because they won’t pay off. 
Mr. Bernanke himself has been wrestling with the possibility that the original framing of a global savings glut got the problem in reverse. “I may have made a mistake in trying to assign a name,” Mr. Bernanke, now at the Brookings Institution, said in an interview. “A glut means more than is wanted. But it doesn’t necessarily arise because people want to save more. It can be because they invest less. 
“It’s entirely possible that if you look at the world, you have slow-growing advanced economies, China cutting back on capital investments, that the rate of return is just going to be low.” 
If this analysis of the world is correct, investors have an unpleasant choice: consign themselves to returns lower than the historical norm, or chase ever more obscure investments that might offer an extra percentage point or two of return.
Robert Shiller
Until the recent crisis, economists were talking up the “great moderation”: economic fluctuations were supposedly becoming milder, and many concluded that economic stabilization policy had reached new heights of effectiveness. As of 2005, just before the onset of the financial crisis, the Harvard econometricians James Stock (now a member of President Barack Obama’s Council of Economic Advisers) and Mark Watson concluded that the advanced economies had become both less volatile and less correlated with each other over the course of the preceding 40 years. 
That conclusion would have to be significantly modified in light of the data recorded since the financial crisis. The economic slowdown in 2009, the worst year of the crisis, was nothing short of catastrophic. 
In fact, we have had only three salient global crises in the last century: 1929-33, 1980-82, and 2007-9. These events appear to be more than just larger versions of the more frequent small fluctuations that we often see, and that Stock and Watson analyzed. But, with only three observations, it is hard to understand these events. 
All seemed to have something to do with speculative price movements that surprised most observers and were never really explained, even years after the fact. They also had something to do with government policymakers’ mistakes. For example, the 1980-82 crisis was triggered by an oil price spike caused by the Iran-Iraq war. But all of them were related to asset-price bubbles that burst, leading to financial collapse. 
Those who warn of grave dangers if speculative price increases are allowed to continue unimpeded are right to do so, even if they cannot prove that there is any cause for concern. The warnings might help prevent the booms that we are now seeing from continuing much longer and becoming more dangerous.

stats and forecast; interest rates and wage inflation

The importance of CBO’s new interest rate projections by Nick Bunker
In its 2013 long-term budget projections, CBO forecasted that the long-run average annual interest rate would be 3 percent. This year’s forecast has lowered that projection to 2.5 percent. This new projection is not only lower than previous forecasts but also lower than the average range of 3.1 over the period of 1990 to 2007. Thankfully, CBO goes through the different factors that influenced their lower projected interest rates. And these factors are interesting in their own right.

NYT Says 12.4 Percent Growth in China Is "Sputtering" by Dean Baker
"Some economists inside and outside the government say China has a choice: slow down lending and accept steady declines in economic growth each year, or continue heavy lending and risk a sharp drop in economic growth someday when the financial system begins to teeter. But nobody knows when that might happen." 
If that sounds very scary then it's worth reading through to the last paragraph: 
"Retail sales are growing strongly, up 12.4 percent in June from a year earlier, according to the government figures released Wednesday, nearly matching a pace of 12.5 percent in May." 
As the article explains, real wages for factory workers are rising at more than an 8.0 percent annual rate. If that pace of real wage growth continues, the country should not have to worry about a lack of demand in the years ahead.
It's always everywhere a dilemma. The possibility of other solutions is foreclosed.

Cochrane, axiomatization, and formalism

Ancient Economists: Two Views by J.W. Mason

Another Complaint about Modern Macroeconomics by David Glasner

John Cochrane on the Failure of Macroeconomics by David Glasner

Morning Plum: Once again, Republicans tell Tea Party to get lost
Late yesterday, the GOP-controlled House overwhelmingly passed a temporary $10.9 billion fix to the Highway Trust Fund, replenishing it until next spring. The White House had warned insolvency could grind state infrastructure projects to a halt and cost as many as 700,000 jobs. As Glenn Kessler explains, this figure is probably overstated. But economic firms such as Moody’s Analytics were warning that failure could imperil the recovery just when it may be poised to accelerate. 
The House GOP fix is loaded with gimmicks, and it defers the tougher decisions over how to keep the fund going over the long term. But it avoids a short term disaster, so the White House is supporting it grudgingly. I’m told the Dem-controlled Senate will likely pass it. “We’ll probably end up passing theirs,” a Senate Dem aide emails. 
Conservative groups such as Heritage Action had warned darkly that Republicans must not “bail out” the HTF. Yet the HTF fix passed the House by 367-55. As the New York Times observes, this was “another in a series of defeats for conservative groups” who think “responsibility for highways and bridges should return to state and local governments.”

Tuesday, July 15, 2014

corporate personhood

In some of the instances detailed by the Justice Department’s statement of fact, the proportion of dubious loans in a given mortgage pool went as high as thirty or forty per cent. That is what the firms who did the sampling told Citi, anyway. On reading one of the due-diligence reports, a trader at the bank wrote in an internal e-mail, “We should start praying…. I would not be surprised if half of these loans went down…. It’s amazing that some of these loans were closed at all.”
In this case, and in many others, the bank went ahead and securitized loans from the pool whose quality had been called into question. The mortgage-backed securities that Citi created were sold for billions of dollars, and all too many of them subsequently endured heavy losses as individual home owners defaulted on their loans—just as the Citi trader had predicted they would.
Where is that trader today? Where is his boss, and his boss’s boss, and his boss’s boss’s boss? About the only thing we know is that they aren’t in the dock. Nobody is, unless, of course, you follow the example of the Supreme Court and ascribe some sort of full-blown personhood to a corporation, in this case Citigroup. “Today, we hold Citi accountable for its contributing role in creating the financial crisis,” Associate Attorney General Tony West said, “not only by demanding the largest civil penalty in history, but also by requiring innovative consumer relief that will help rectify the harm caused by Citi’s conduct.”
Ahem. The best possible spin on the settlement is that it represents a belated but promising step-up in the effort to hold some individual bankers accountable. Holder insisted that nothing in it precludes the bringing of criminal charges. Perhaps the inter-agency group of investigators and prosecutors that brought this civil case will now press ahead and use the evidence they uncovered to go after the traders and supervisors who were responsible for the “wrongdoing,” and the senior bank executives to whom they reported.


Coppola agrees on the problem with Baker.

"The US trade deficit is pretty intractable largely because the two major surplus countries - China and Germany - do not have currencies that float with respect to the USD. Germany uses the Euro, which does float, but the Euro is persistently undervalued relative to fundamentals in Germany because of the presence of weaker countries in the union. If the currency cannot adjust, then neither the trade deficit nor the capital surplus can correct unless unit labour costs fall, which means very significant falls in wages and employment costs. This is what is happening in the Eurozone periphery: it has not happened in the US thus far because of the US's willingness to borrow and the world's willingness to lend to it. 

However, there is a cost. As Philip Booth points out, China will not be able to suppress inflation forever if its currency is under-valued. Germany, too, faces high inflation relative to others in the Eurozone if its economy is  out of equilibrium: the ECB's tight money policies keep German inflation below 2%, but this forces weaker countries into outright deflation. "

Makes sense as ruling class policy: keep the labor market loose and increase the capital share and incentivize Germany to ally with us against Russia and to pay off China.

And yet she sees Baker's solution as unlikely: "This is why devaluing the dollar would not necessarily reduce the US's trade deficit, as Dean Baker thinks: China would simply adjust the yuan to maintain its desired exchange value, and Germany would tighten fiscal policy to stop a fiscal deficit developing as a consequence of a falling trade surplus in a low-demand economy. The only way to resolve the currency problem is for China to allow the yuan to float and Germany to abandon austerity. Hell might freeze over first. "

Inflation should be building in Germany and China.

Monday, July 14, 2014

positive outlook

Here’s why Larry Summers is wrong about secular stagnation by David Beckworth

Steve Liesman Embarrasses Rick Santelli On CNBC

the Great Clusterfuck and deflation


Unemployment, aggregate demand, and search/matching by Nick Rowe

I don't quite understand it, but Krugman says Keynesians expected more deflation/disinflation from the aggregate demand shocks in the U.S. and Japan. (What about Europe?) What if QE explains it?

Neoclassical and New Keynesian models seem to be poorly with distributional issues. Maybe it was something to do with that.

Nadine Gordimer

Nadine Gordimer, Novelist Who Took on Apartheid, Is Dead at 90

The Constition

The U.S. Constitution was created to form a government that wouldn't devolve into a tyranny along the lines of the monarchies of contemporary Europe.

But the more conservative of the framers were worried about the mob and wanted to put checks on the majority.

As Piketty's K21 and the last 40 years shows we should be more concerned about the opposite problem, the ability and tendency for the power and wealth of the minority to self-replicate, reinforce and grow - metastasize - at the expense of the majority.

Watch John Oliver completely destroy the idea that hard work will make you rich
The facts about economic inequality in America are pretty staggering. The top 1 percent of Americansbrings home close to 20 percent of income. Income inequality is the highest it's been since 1928. And Pew found that by a 60 to 36 percent margin, Americans believe they live in a country with a system that unfairly favors the wealthy. 
So the big question is: Why do Americans allow this to happen?

The answer, in John Oliver's estimation, is the American sense of optimism. He notes that a shockingpercentage of Americans feel the economic system unfairly favors the wealthy, but still believe that they will be wealthy if they put in the hard work. 
"I can clearly see this game is rigged, which makes it so sweet when I win this thing," Oliver says.

Sunday, July 13, 2014


Dan Davies comment at the Slack Wire
Well, there is the problem Minsky identified, of chasing yield from prudent standards of risk-taking into ponzi schemes.

This is a really common misunderstanding of Minsky, and it's his (and Charles Kindleberger's for endorsing it) fault for selecting a needlessly and misleadingly pejorative set of names for his financial structures.

A "Ponzi" project in Minsky's terminology isn't a Ponzi scheme, and it has no built in tendency to collapse. It's just a project that, for a meaningful period after its inception, doesn't generate enough cash flow to cover interest payments and so has to increase its debt to keep going. 

So, an example of a "Ponzi" project in Minsky's terminology might be ... going to university. College students don't generate cash flow and increase their debt to cover operating expenses.

And note, of course, that the classification of projects as hedge, speculative or Ponzi depends entirely on the term of the lending. There's no necessary connection between the riskiness of a project and its financing profile. For example, building a toll road between two highly-populated cities would be very likely a Ponzi project, but it is a very low risk loan indeed (similarly, shipping finance has this characteristic). Minsky had a Financial Instability Hypothesis, not a RealInstability Hypothesis, and most of the "risky" projects that he talks about are only really risky because they are exposed to the very liquidity risk that Josh (correctly) notes is reduced in an environment of surplus liquidity. It's a real misreading of Minsky to re-profile him as a theorist of Austrian-style malinvestment.
JW Mason replies
Yes, agree completely. 
One reason Minsky introduced these distinctions was to highlight the effects of changes in financial conditions on existing balance sheet commitments. In particular, since the line between speculative and Ponzi finance depends on a unit's ability to make current interest payments, where the line falls depends on the interest rate. "A speculative financing arrangement can be transformed into a Ponzi finance scheme by a rise in interest ... if earnings are better or costs, especially interest rates, fall, Ponzi financing may be transformed into speculative financing." The idea that low rates encourage risky financial commitments implicitly assumes that interest rates are known in advance, before the commitments are made. But in the real world, the effect of interest rate changes on the riskiness of existing commitments is more important.
This is the big argument of my "Fisher dynamics" papers -- the rise in interest rates under Volcker moved the aggregate balance sheet of the US household sector from speculative to Ponzi, despite a reduction in expenditure relative to income. (Although neither Arjun or I thought of using that language -- I'll have to add it to the next version.) As DD says, if you take Minsky seriously, then a concern with financial fragility favors keeping rates low, even if that does encourage taking on more "real" risk. 
 Six days later Bruce Wilder replies (after doing research?)
Minsky was a supremely articulate man, and I am sure he chose pejorative labels, advisedly.

D^2's example of a project to build a toll road, with its heavy element of construction financing, is a terribly misleading way to present Minsky's concept of Ponzi finance. Minsky's idea is not that some possibly worthwhile investment projects are Ponzi projects, but that the overall standard for fixing leverage ratios, in financing the nominal ownership and control of business assets, can shade over time, from predominately Hedge finance to Speculative finance, as conventions and expectations are shaped by recent experience.

For Minsky, Hedge finance, Speculative Finance, and Ponzi finance were three Ideal Types, corresponding to progressively greater debt to income ratios, that is, greater leverage, and possibly representing successive stages in the dynamic capital development of an economy progressing thru a cycle.

His notion was that one or another could be said to prevail in the economy at any one point in time, as conventional standards of what constitutes shrewd, but prudent judgment in borrowing and lending evolve, with common experience and expectations. When Hedge finance predominates, the economy as a system, in Minsky's view, is likely to be resilient, and apparently self-stabilizing in response to exogenous shocks or policy interventions, like a change in policy interest rates.

Experience with such stability, however, is likely to lead to greater and successful risk-taking by bankers and entrepreneurs, taking the economy toward a state in which speculative finance predominates, there is more debt introduced into the economy and higher leverage, which may take the economy into a sustained boom, and even to a state in which Ponzi finance predominates. 

An economy in which speculative finance predominates may not be as resilient, and an economy in which a standard of Ponzi finance prevails, may be at hazard of crisis and debt-deflation.

The ownership and control of a toll road could be financed to any of the three standards -- hedge, speculative or ponzi. The ultimate point of Minsky's scheme, though, is the dynamics by which such a business could be shifted, along with the economy as a system, along a continuum from one state to the next, from the cautious conservatism of hedge finance, through a heady period in which appreciation feels like growth in revenues, to pondering disinvestment as a way to channel more of the quasi-rents to debt or equity payments.

I think the term, Ponzi finance, was very much chosen to highlight the inevitability of collapse inherent in such a standard of finance.
Hyman Minsky at Wikipedia
Minsky proposed theories linking financial market fragility, in the normal life cycle of an economy, with speculative investment bubbles endogenous to financial markets. Minsky claimed that in prosperous times, when corporate cash flow rises beyond what is needed to pay off debt, a speculative euphoria develops, and soon thereafter debts exceed what borrowers can pay off from their incoming revenues, which in turn produces a financial crisis. As a result of such speculative borrowing bubbles, banks and lenders tighten credit availability, even to companies that can afford loans, and the economy subsequently contracts....
The "hedge borrower" can make debt payments (covering interest and principal) from current cash flows from investments. For the "speculative borrower", the cash flow from investments can service the debt, i.e., cover the interest due, but the borrower must regularly roll over, or re-borrow, the principal. The "Ponzi borrower" (named for Charles Ponzi, see also Ponzi scheme) borrows based on the belief that the appreciation of the value of the asset will be sufficient to refinance the debt but could not make sufficient payments on interest or principal with the cash flow from investments; only the appreciating asset value can keep the Ponzi borrower afloat. 
If the use of Ponzi finance is general enough in the financial system, then the inevitable disillusionment of the Ponzi borrower can cause the system to seize up: when the bubble pops, i.e., when the asset prices stop increasing, the speculative borrower can no longer refinance (roll over) the principal even if able to cover interest payments. As with a line of dominoes, collapse of the speculative borrowers can then bring down even hedge borrowers, who are unable to find loans despite the apparent soundness of the underlying investments.
Economist Paul McCulley described how Minsky's hypothesis translates to the subprime mortgage crisis.[11] McCulley illustrated the three types of borrowing categories using an analogy from the mortgage market: a hedge borrower would have a traditional mortgage loan and is paying back both the principal and interest; the speculative borrower would have an interest-only loan, meaning they are paying back only the interest and must refinance later to pay back the principal; and the ponzi borrower would have a negative amortization loan, meaning the payments do not cover the interest amount and the principal is actually increasing. Lenders only provided funds to ponzi borrowers due to a belief that housing values would continue to increase. 
McCulley writes that the progression through Minsky's three borrowing stages was evident as the credit and housing bubbles built through approximately August 2007. Demand for housing was both a cause and effect of the rapidly expanding shadow banking system, which helped fund the shift to more lending of the speculative and ponzi types, through ever-riskier mortgage loans at higher levels of leverage. This helped drive the housing bubble, as the availability of credit encouraged higher home prices. Since the bubble burst, we are seeing the progression in reverse, as businesses de-leverage, lending standards are raised and the share of borrowers in the three stages shifts back towards the hedge borrower. 
McCulley also points out that human nature is inherently pro-cyclical, meaning, in Minsky's words, that "from time to time, capitalist economies exhibit inflations and debt deflations which seem to have the potential to spin out of control. In such processes, the economic system's reactions to a movement of the economy amplify the movement – inflation feeds upon inflation and debt-deflation feeds upon debt deflation." In other words, people aremomentum investors by nature, not value investors. People naturally take actions that expand the high and low points of cycles. One implication for policymakers and regulators is the implementation of counter-cyclical policies, such as contingent capital requirements for banks that increase during boom periods and are reduced during busts.

Stannis the Man

Stannis Baratheon was upset with Davos Seaworth when he learned that Joffrey Baratheon had died at King's Landing. He didn't have the men to take advantage of it and Davos had helped Gendry escape.

Later that day Davos was learning to read with Shireen using a book about pirates. She asked if he had been a pirate and he said no had been a smuggler, there's a distinction. He went on how Braavos didn't care about the distinction either as the Iron Bank didn't when considering those who stole from its barges loaded with loot. This gave Davos an idea. The Iron Bank wouldn't make a distinction between Stannis and Tywin/Tommen as long as they got their money. (The royal family owed the Iron Bank a lot as Tyrion found out when he became Master of Coin.) If Davos could make a better argument to them now that Joffrey is dead, perhaps they would loan them gold. Davos ultimately did by describing how Stannis cut off his fingers even though his smuggling saved Storm's End.

And so Stannis saved the Nightswatch and the North from the Wildling army even though Melisandre will now be eyeing Shireen and Mance's baby (will they drop that storyline?) And even though Roose and Ramsay Bolton rule the North.