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Emir Phillips

DBA Graduate - 2018

Thesis title

How the orthodox view of money is compounding the risk of Black/Grey swans throughout international banking


Francois Desmoulins-Lebeault

Emir Phillips, JD/MBA MSFS, ChFC CLU is a candidate in the DBA Program at the Grenoble École de Management.

Research Interest  ; coalesces around the query of, “What can be done to make SIFI banks more stable and risk conscious?” My research presumes the banking system is prone to contagion, i.e., problems at one bank will spread to other banks and system-wide at a very fast rate. In the world of international banking, networked interactions are exponentially varied and unpredictably dynamic. Thus, the true costs of a bank’s corporate mis-governance are somewhat incalculable. My research primarily addresses international-banking's corporate governance and systemic sustainability.

Each theoretical article discerns how the orthodox view of money is compounding risk throughout international banking. The paradigm of mainstream macroeconomics for nearly two hundred years has held firmly that a barter economy would exist without money and finance. Mainstream macroeconomics has followed Aristotle, Locke, and Smith who all deduced that money emerged out of barter even though no one then or now has ever actually seen an economy that operated entirely via barter exchange. Holding fast to a (barter-like) Walrasian worldview has meant debt does not exist and credit aggregates are not considered due to an a-historical mis-conceptualization of money/credit. As long as money, credit and debt are not accorded special roles, a bloated financial sector may well contribute to the suboptimal allocation of talents. Since money, credit and debt need to be accorded special (non-quantitative) roles, corporate governance in systemically important financial institution must prevent risk from endearing Black/Grey Swans (massively damaging outliers blind to quantitative forecasting). Unfortunately, this has not happened since the Great Financial Crisis, which itself was a Black/Grey Swan wherein foreclosure spill-over effects systemically worsened the housing crisis and were not evenly diffused throughout the broader housing market. This resulted in an untenable residential-price bubble as synthetically inexpensive credit from investors’ mispricing amplified mortgage demand, while greater mortgage quantity nudged up housing prices. The result was a self-referential cycle of waning residential prices supporting and perpetuating nigh incessant foreclosures: the bubble had burst. Money/credit is no longer a lubricant or veil to the real economy; rather, it is a vital mechanism for economic growth or monetary disorder. The (barter-like) Walrasian neoliberal model of money/credit multiplier is obsolete and founded on the miscomprehension that deposits are deposited. These days, fiat money is almost exclusively electronic and can be created instantly at the discretion of individual commercial banks or the central bank. When creditworthy borrowers can be found, commercial banks are highly pro-active in creating credit/money. Central banks react and inevitably oblige commercial banks’ demand for reserves. Commercial banks initially create credit/money, and subsequently scour for fractional re-financing. Thus, commercial banks and not central banks, chiefly determine the entire supply of money (this critical fact is seldom if ever discussed in orthodox economics or finance books in higher ed institution). There is an unknown latent cost in engendering Black/Grey Swans by institutionally perceiving money as nothing more than a veil.Key Words: neutrality of money, Blacks Swans, foreclosures, Bullionist Controversy, Swiss-WIR credit