I'm reading his book, and finding it surprisingly agreeable.

Interesting as a case study in economic sociology, though none of the participants seem to be equipped to recognize this.
(Predictably, the comments section is full of hurt bitcoin boosters.)

"But of course the most straightforward way to provide banking services to poor people is to just provide the service—create a public option for small-scale depository banking. Since postal services generally already have widespread retail operations, this is often done in collaboration with the post office and is known as “postal banking.” But in an electronic age, you don’t really need physical banks at all. Everyone could just be given an account with a $5,000 maximum on a Treasury Department computer and they could mail you an ATM card with your draft registration card when you turn 18. The accounts could pay 0 interest and wouldn’t need to offer any services beyond basic “money goes in, money goes out” and nobody would have to be “unbanked.” It would cost the government some money to administer such a system, but it would also amount to the government getting interest free loans from Treasury Bank customers so if people actually used it it would be a wash." Or: banking as utility.

"Bhide warns us that modern finance is on a collision course with the true heart of capitalism: innovation and entrepreneurship. Deepening this disconnect is the growing complexity of banks, which habitually fail to hold bankers accountable for their mistakes, while blatantly subverting the tough banking rules established in the 1930s. As Bhide makes clear, the erosion of these rules displaced traditional relationship-based lending in favor of liquid, anonymous securities, which ultimately succeeded in depriving large banks (and other publicly traded companies) of oversight by investors with first-hand knowledge of the business or its managers. Identifying this lack of monitoring as a fatal flaw that destabilized the economy and helped trigger the financial crisis, Bhide pushes for tough, straightforward limits on the activities of commercial banks and financial instruments such as money market funds."

ETA: review: http://bactra.org/reviews/bhide-contra-finance.html

UK's chief bank regulator: "The banking industry is ... a pollutant. Systemic risk is a noxious by-product. Banking benefits those producing and consuming financial services – the private benefits for bank employees, depositors, borrowers and investors. But it also risks endangering innocent bystanders within the wider economy – the social costs to the general public from banking crises."

It is good to hang a banker from the lamp-posts in lower Manhattan from time to time, to encourage the others.

"In that sense, this time really is different: while the first great global financial crisis was followed by major reforms, it’s not clear that anything comparable will happen after the second. And history tells us what will happen if those reforms don’t take place. There will be a resurgence of financial folly, which always flourishes given a chance. And the consequence of that folly will be more and quite possibly worse crises in the years to come." --- I wonder, does Krugman read Ken MacLeod? If not, someone should send him a copy of The Fall Revolution.

As every school-child knows, firms in a competitive market earn no profit over their cost of capital (and paying for their employees' time, including the entrepreneurs' if any). Deregulation of banking and finance had many effects, but creating a competitive environment was very evidently not one of them.

"So there are a lot of people out there who think that we need to kill the moral hazard of having your savings account insured. Grandma has $12,000 in her savings account, and doesn’t worry about whether or not the bank is solvent – so let’s force her to worry by removing the FDIC protection. This worrying will result in her providing discipline to her bank on their risk. ... How will grandma know what to do? ... I know the simple way you do it, some techniques that I’ve had some training in: You place out the payment structures using monte-carlo simulations with lognormal random walks; you take a metric of correlation in the market, perhaps in a gaussian copula structure and use that to run correlations at each step between the instruments; you take the distribution you generate and apply a “value-at-risk” logic to it, looking at some piece of the tail distribution.
... a 16-year old who wants to open a savings account for his part-time job will need to know these techniques..."

Claim: banks used securitization (specifically, CDOs) to increase their leverage --- making a larger volume of loans on the same base of equity. Banks largely ended up buying the securities of other banks. Not 100% sure the incentives work out the right way here for buying banks; should try reading Shin's actual paper (linked at end) with pen in hand.

Credit default swaps as an instrument of state capture. (In the immortal words of Patrick Nielsen Hayden, "I have personally felt like I was living in a Ken MacLeod future since sometime not long after 9/11, and I wish he'd CUT IT OUT.")

I think I can be pretty confident in stating that absolutely nobody on Wall St. envies this bank. (For instance, no one in my 46-929 class would dream of taking a job there.) Which doesn't mean it's a bad idea; quite the contrary...

"In 1997 former Federal Reserve Board Chairman Paul Volcker posed a question about the commercial banking system he said he could not answer. The industry was under more intense competitive pressure than at any time in living memory, Volcker noted, “yet at the same time the industry never has been so profitable.” .. the seemingly strange coexistence of intense competition and historically high profit rates in commercial banking [is] Volcker’s Paradox. He extends the paradox to all important financial institutions and discusses four developments that together help resolve it: rapid growth in the demand for financial products and services in the past quarter century; rising concentration in most major financial industries; increased risk-taking among all the major financial market actors that has raised average profit rates; and rapid financial innovation in over-the-counter derivatives that allows giant banks to create and trade complex products with high profit margins."

"use of credit derivatives by US bank holding companies from 1999 to 2003 with assets in excess of one billion dollars. ... we find that in 2003 only 19 large banks out of 345 use credit derivatives. Though few banks use credit derivatives, the assets of these banks [were] on average two thirds of the assets of bank holding companies [in the sample]. Few banks are net buyers of credit protection and disclose using credit derivatives to hedge loans. Banks are more likely to be [net] buyers if they engage in asset securitization, originate foreign loans, and have lower capital ratios. The likelihood of a bank being a net protection buyer is positively related to the percentage of commercial and industrial loans in a bank's loan portfolio and negatively or not related to other types of bank loans. The use of credit derivatives by banks is limited because adverse selection and moral hazard problems make the market for credit derivatives illiquid for the typical credit exposures of banks."

Shorter Crotty: there was no good reason to expect a minimally regulated financial sector to stably and efficiently allocate risk and capital, and it didn't.

Origins of the present troubles. --- Somewhat surprisingly, I mostly agree with this.

Kevin Drum's "bank nationalization 101".

"Citi’s problem isn’t that it has toxic assets, it’s that it made loans backed with toxic assets. You don’t rescue banks by “tak[ing] distressed assets off the balance sheet of Citigroup or other troubled financial institutions.” The problem isn’t the assets, it’s the debts. You can deal with the problem by giving the banks vast sums of money in exchange for their toxic assets but in this case what’s solved the problem isn’t that the assets came off the balance sheet, it’s that the money you gave them got on the balance sheet." (My romans.)

in which Citibank gets taken for $27 million.

The end of Swiss banking as we knew it.

"An analysis of the Japanese credit market in 2004 between banks and quoted firms is done in this paper using the tools of the networks theory. It can be pointed out that: (i) a backbone of the credit channel emerges, where some links play a crucial role; (ii) big banks privilege long-term contracts; the "minimal spanning trees" (iii) disclose a highly hierarchical backbone, where the central positions are occupied by the largest banks, and emphasize (iv) a strong geographical characterization, while (v) the clusters of firms do not have specific common properties. Moreover, (vi) while larger firms have multiple lending in large, (vii) the demand for credit (long vs. short term debt and multi-credit lines) of firms with similar sizes is very heterogeneous." --- Something's funny here: why doesn't it cite Stiglitz's work on banking and credit rationing?

MacKenzie explains LIBOR, and the social processes behind it.

To think through.

Proposal: Escrow bonuses for excess returns until it's clear that they have, in fact, materialized. Cf. Young and Foster's bit about how to look like a wizard fund-manager.

Cf. my "modest proposal for the reform of corporate governance" from a few years ago

Just how screwy have mortgages become?