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Inspired by the 11 Tony awards won by the smash Broadway hit Hamilton, last month I wrote about Alexander Hamilton as the father of the US national debt and discussed the huge benefit the United States derives from having paid its debts promptly for more than two hundred years. Despite that post, no complementary tickets to Hamilton have arrived in my mailbox. And so this month, I will discuss Hamilton’s role as the founding father of American central banking.

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In a widely quoted interview with USA Today, Ben Bernanke said that ‘It would have been my preference to have more investigations of individual actions because obviously everything that went wrong or was illegal was done by some individual, not by an abstract firm.’ He makes it clear that he thought some Wall Street executives should have gone to jail.

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In 2008 Iceland experienced one of the worst financial crises in history, which involved the collapse of all three of its major commercial banks. The causes of this collapse were numerous and complex, and included the banks’ difficulty in refinancing their short-term debt and a run on their deposits.

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The industrialized world is currently moving through a period of ultra-low interest rates. The main benchmark interest rates of central banks in the United States, the United Kingdom, Japan, and the euro-zone are all 0.50% or less. The US rate has been near zero since December 2008; the Japanese rate has been at or below 0.50% since 1995. Then there are the central banks that have gone negative: the benchmark rates in Denmark, Sweden, and Switzerland are all below zero. Other short-term interest rates are similarly at rock-bottom levels, or below.

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Last month, the European Central Bank (ECB) announced its plans to commence a €60 billion (nearly $70 billion) of quantitative easing (QE) through September 2016. In doing so, it is following in the footsteps of American, British, and Japanese central banks all of which have undertaken QE in recent years. Given the ECB’s actions, now is a good time to review quantitative easing. What is it? Why has the ECB decided to adopt this policy now? And what are the likely consequences for Europe and the wider world?

What is quantitative easing (QE)?

Under normal circumstances, central banks undertake monetary policy via open market operations. This typically involves buying (or selling) securities in a short-term money market to lower (or raise) the interest rate prevailing in that market. Central banks are well equipped to do this. They have large inventories of securities that they can easily sell in order withdraw money from the market and push interest rate up. They also have a monopoly on the creation of their particular currency, which they can use to buy securities and push the interest rate down. Open market purchases and sales usually only last for a day or two (through repurchase agreements, or repos), but can be repeated as often as necessary and adjusted in size to achieve the targeted rate.

For an economy that is mired in recession, open market purchases can be a good policy move: buying securities lowers short-term interest rates and increases the money supply. In time, such expansionary monetary policy can also reduce longer-term interest rates, which may stimulate spending on new houses, factories, and equipment, since such investment spending is often made with borrowed money. Expansionary monetary policy will also lead to a decline in the value of the domestic currency on international markets (i.e., depreciation), which will help domestic exports. Too much sustained monetary expansion can lead to inflation, which is one of the main risks of this policy.

In the current economic climate, however, short-term interest rates are already hovering around zero. Although some central banks have flirted with the idea of negative interest rates, there is not much room for conventional expansionary monetary policy to do much good.

Enter quantitative easing. Using quantitative easing, central banks purchase longer-term securities and, unlike open market operations, the purchases are usually permanent instead of for just a few days. This lowers longer-term interest rates. Since individuals and firms that borrow money to invest in homes, factories, and equipment generally do not finance these long-loved assets with overnight borrowing (for mortgages, 15- and 30-year terms are more typical), lowering longer-term interest rates may be a good way to stimulate such long-term investment.

Why now?

The European economy is listless. GDP appears to have grown—just barely—during the year just finished. Although 2014’s performance was an improvement over 2013’s decline in GDP, the EU’s growth forecasts for 2015 and 2016 are far from rosy. The job market is sluggish: EU-wide unemployment was 11.6% in 2014, down slightly from 12.0% in 2013. And a pick-up in inflation, which should accompany growth, was absent in 2014: the authorities have set a 2.0% for inflation; instead prices rose by an anemic 0.4% in 2014. Several countries have made progress toward much-needed structural reform; however, it is not clear that such reforms alone will get the European economy out of the doldrums anytime soon.

Other dangers facing the European economy also argue in favor of quantitative easing. To the east, tensions with Russia could flare at any time. The terrorist attacks in France have given a boost to right-wing parties throughout Europe, another threat to stability. And the election victory of the anti-austerity Syriza party in Greece, suggests that relations between Greece and the EU are about to get rockier.

What are the consequences?

Quantitative easing will strengthen Europe’s wobbly recovery. The announcement quickly lifted European stock markets—the Euro Stoxx 50-share index rose 1.6% on the news. Lower longer-term interest rates should encourage more borrowing and investment spending. And QE will lead to a continued depreciation in the value of the euro, already at a decade-low against the US dollar, which will make European exports more competitive in world markets. The results will not be so pleasant for American exports, since the euro’s depreciation will cut into recent American export growth, which has benefitted from three rounds of American QE, the last of which ended a few months ago.

Quantitative easing will not sit well with all Euro-zone countries. Germany, which is economically far more robust than its European partners, is not a fan of QE. Memories of a destructive hyperinflation in the 1920s still linger in the national consciousness, lead Germans to be far more skeptical of a potentially inflationary policy that they see as bailing out their more profligate neighbors at their expense.

Finally, the European Central Bank has not said exactly which bonds it will buy. When the US Federal Reserve undertook QE, it had a wide variety of Treasury securities to purchase. Given the high credit-worthiness of the US government and the fact that the market for US Treasury securities is the most liquid market in the world, it was not difficult to find suitable securities to purchase. Will the ECB buy the debt of the fiscally weak euro-zone nations and put their balance sheet at risk? Or will it restrict its purchases to only the most credit worthy countries and risk the ire of the citizens from less well-heeled nations?

Despite these legitimate concerns, Europe’s weak economic performance requires bold action. Quantitative easing is an important step in the right direction.

Featured image credit: Growing Euros, by Images_of_money. CC-BY-2.0 via Flickr.

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Paula Yoo is a children’s book writer, television writer, and freelance violinist living in Los Angeles. Her latest book, Twenty-two Cents: Muhammad Yunus and the Village Bank, was released last month. Twenty-two Cents is about Muhammad Yunus, Nobel Peace Prize winner and founder of Grameen Bank. He founded Grameen Bank so people could borrow small amounts of money to start a job, and then pay back the bank without exorbitant interest charges. Over the next few years, Muhammad’s compassion and determination changed the lives of millions of people by loaning the equivalent of more than ten billion US dollars in micro-credit. This has also served to advocate and empower the poor, especially women, who often have limited options. In this post, we asked her to share advice on what’s she’s learned about banking, loans, and managing finances while writing Twenty-two Cents.

What are some reasons why someone might want to take out a loan? Why wouldn’t banks loan money to poor people in Bangladesh?

PAULA: People will take out a loan when they do not have enough money in their bank account to pay for a major purchase, like a car or a house. Sometimes, they will take out a loan because they need the money to help set up a business they are starting. Other times, loans are also used to help pay for major expenses, like unexpected hospital bills for a family member who is sick or big repairs on a house or car. But asking for a loan is a very complicated process because a person has to prove they can pay the loan back in a reasonable amount of time. A person’s financial history can affect whether or not they are approved for a loan. For many people who live below the poverty line, they are at a disadvantage because their financial history is very spotty. Banks may not trust them to pay the loan back on time.

In addition, most loans are given to people who are requesting a lot of money for a very expensive purchase like a house or a car. But sometimes a person only needs a small amount of money – for example, a few hundred dollars. This type of loan does not really exist because most people can afford to pay a few hundred dollars. But if you live below the poverty line, a hundred dollars can seem like a million dollars. Professor Yunus realized this when he met Sufiya Begum, a poor woman who only needed 22 cents to keep her business of making stools and mats profitable in her rural village. No bank would loan a few hundred dollars, or even 22 cents, to a woman living in a mud hut. This is what inspired Professor Yunus to come up with the concept of “microcredit” (also known as microfinancing and micro banking).

In TWENTY-TWO CENTS, microcredit is described as a loan with a low interest rate. What is a low interest rate compared to a high interest rate? 

PAULA: When you borrow money from a bank, you have to pay the loan back with an interest rate. The interest rate is an additional amount of money that you now owe the bank on top of the original amount of money you borrowed. There are many complex math formulas involved with calculating what a fair and appropriate interest rate could be for a loan. The interest rate is also affected by outside factors such as inflation and unemployment. Although it would seem that a lower interest rate would be preferable to the borrower, it can be risky to the general economy. A low interest rate can create a potential “economic bubble” which could burst in the future and cause an economic “depression.” Interest rates are adjusted to make sure these problems do not happen. Which means that sometimes there are times when the interest rates are higher for borrowers than other times.

What is a loan shark?

PAULA: A loan shark is someone who offers loans to poor people at extremely high interest rates. This is also known as “predatory lending.” It can be illegal in several cases, especially when the loan shark uses blackmail or threats of violence to make sure a person pays back the loan by a certain deadline. Often people in desperate financial situations will go to a loan shark to help them out of a financial problem, only to realize later that the loan shark has made the problem worse, not better.

Did your parents explain how a bank works to you when you were a child? Or did you learn about it in school?

PAULA: I remember learning about how a bank works from elementary school and through those “Schoolhouse Rocks!” educational cartoons they would show on Saturday mornings. But overall, I would say I learned about banking as a high school student when I got my first minimum wage job at age 16 as a cashier at the Marshall’s department store. I learned how banking worked through a job and real life experience.

TWENTY-TWO CENTS is a story about economic innovation. Could you explain why Muhammad Yunus’s Grameen Bank was so innovative or revolutionary?

PAULA ANSWER: Muhammad Yunus’ theories on microcredit and microfinancing are revolutionary and innovative because they provided a practical solution on how banks can offer loans to poor people who do not have any financial security. By having women work together as a group to understand how the math behind the loan would work (along with other important concepts) and borrowing the loan as a group, Yunus’ unique idea gave banks the confidence to put their trust into these groups of women. The banks were able to loan the money with the full confidence in knowing that these women would be able to pay them back in a timely manner. The humanitarian aspect of Yunus’ economic theories were also quite revolutionary because it gave these poverty-stricken women a newfound sense of self-confidence. His theories worked to help break the cycle of poverty for these women as they were able to save money and finally become self-sufficient. The Nobel Committee praised Yunus’ microcredit theories for being one of the first steps towards eradicating poverty, stating, “Lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty.”

Twenty-two Cents: Muhammad Yunus and the Village Bank is a biography of 2006 Nobel Peace Prize winner Muhammad Yunus, who founded Grameen Bank and revolutionized global antipoverty efforts by developing the innovative economic concept of micro-lending.

Filed under: Guest Blogger Post, Lee & Low Likes, Musings & Ponderings Tagged: bangladesh, banking, banks, Economics, grameen bank, loan shark, loans, microcredit, money, Muhammad Yunus, nobel peace prize, Paula Yoo, poverty

By Geoffrey Hosking

In many countries, including Britain, the Euro-elections in May showed that a substantial minority of voters are disillusioned with mainstream parties of both government and opposition. This result was widely anticipated, and all over Europe media commentators have been proclaiming that the public is losing trust in established politicians. Opinion polls certainly support this view, but what are they measuring when they ask questions about trust? It is a slippery concept which suggests very different things to different people. Social scientists cannot reach any kind of consensus on what it means, let alone on what might be undermining it. Yet most people would agree that some kind of trust in the political process is essential to a stable and prosperous society.

Social scientists have had trouble with the concept of trust because most of them attempt to reach an unambiguous definition of it, distinguishing it from all other concepts, and then apply it to all societies at different times and in different parts of the world. The results are unsatisfactory, and some are tempted to ditch the term altogether. Yet there self-evidently is such a thing as trust, and it plays a major role in our everyday life. Even if the word is often misused, we should not abandon it. My approach is different: I use the word as the focus of a semantic milieu which includes related concepts such as confidence, reliance, faith and belief, and then see how they work in practice in different historical settings.

The original impulse for Trust came from a specific historical setting: Russia during the 1990s. There I observed, at first hand, the impact on ordinary Russians of economic and political reforms inspired by Western example and in some cases directly imposed by the West. Those reforms rested on economic and political precepts derived from Western institutions and practices which dated back decades or even centuries – generating habits of mutual trust which had become so ingrained that we did not notice them anymore. In Russia those institutions and practices instead aroused wariness at first, then distrust, then resentment and even hatred of the West and its policies.

I learnt from that experience that much social solidarity derives from forms of mutual trust which are so unreflective that we are no longer aware of them. Trust does not always spring from conscious choice, as some social scientists affirm. On the contrary, some of its most important manifestations are unconscious. They are nevertheless definitely learned, not an instinctive part of human nature. It follows that forms of trust which we take for granted are not appropriate for all societies.

Despite these differences, human beings are by nature predisposed towards trust. Our ability to participate in society depends on trusting those around us unless there is strong evidence that we should not do so. We all seek to trust someone, even – perhaps especially – in what seem desperate situations. To live without trusting anyone or anything is intolerable; those who seek to mobilise trust are therefore working with the grain of human nature.

We also all need trust as a cognitive tool, to learn about the world around us. In childhood we take what our parents tell us on trust, whereas during adolescence we may well learn that some of it is untrue or inadequate. Learning to discriminate and to moderate both trust and distrust is extraordinarily difficult. The same applies in the natural sciences: we cannot replicate all experiments carried out in the past in order to check whether they are valid. We have trust most of what scientists tell us and integrate it into our world picture.

Because we all need trust so much, it tends to create a kind of herd instinct. We have a strong tendency to place our trust where those around us do so. As a senior figure in the Royal Bank of Scotland commented on the widespread profligacy which generated the 2008 financial crisis: “The problem is that in banks you have this kind of mentality, this kind of group-think, and people just keep going with what they know, and they don’t want to listen to bad news.”

Trust, then, is necessary both to avoid despair and to navigate our way through life, and it cannot always be based on what we know for certain. When we encounter unfamiliar people – and in the modern world this is a frequent experience – we usually begin by exercising an ‘advance’ of trust. If it is reciprocated, we can go on to form a fruitful relationship. But a lot depends on the nature and context of this first encounter. Does the other person speak in a familiar language, look reassuring and make gestures we can easily ‘read’? Trust is closely linked to identity – our sense of our own identity and of that of those around us.

On the whole the reason we tend to trust persons around us is because they are using symbolic systems similar to our own. To trust those whose systems are very different we have to make a conscious effort, and probably to make a tentative ‘advance’ of trust. This is the familiar problem of the ‘other’. Overcoming that initial distrust requires something close to a leap in the dark.

Whether we know it or not, we spend much of our social life as part of a trust network. Such networks can be very strong and supportive, but they also tend to erect around themselves rigid boundaries, across which distrust is projected. When two or more trust networks are in enmity with one another, an ‘advance’ of trust can only work satisfactorily if it proves possible to transform negative-sum games into positive-sum games. However, an outside threat helps two mutually distrusting networks to find common ground, settle at least some of their differences and work together to ward off the threat. When the threat is withdrawn, they may well resume their mutual enmity.

During the twentieth century the social sciences – and following them history – were mostly dominated by theories derived from the study of power and/or rational choice. We still talk glibly of the struggle between democracy and authoritarianism, without considering the kinds of social solidarity which underlie both forms of government. I believe we need to supplement political science with a kind of ‘trust science’, which studies people’s mutual sympathy, their lively and apparently ineradicable tendency to seek reciprocal relationships with one another, and also what happens when that tendency breaks down. It is supremely important to analyse forms of social solidarity which do not derive directly from power structures and/or rational choice. Among other things, such an analysis might help us to understand why certain forms of trust have become generally accepted in Western society, and why they are in crisis right now.

Geoffrey Hosking is Emeritus Professor of Russian History at University College London. A Fellow of the British Academy and an Honorary Doctor of the Russian Academy of Sciences, he was BBC Reith Lecturer in 1988. He has written numerous books on Russian history and culture, including Russian History: A Very Short Introduction and Trust: A History.

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Image credit: David Cameron, by Valsts kanceleja. CC-BY-SA-3.0 via Wikimedia Commons.

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How do we address the problem of inequality in capitalist societies? Tom Malleson, the author of After Occupy: Economic Democracy for the 21st Century, argues that by making sure that democracy exists in both our economy and in our government, we may be able to achieve meaningful equality throughout society. We recently spoke to him about how economic democracy works and how viable it can be.

To start, give us a bare-bones description of what economic democracy is.

Economic democracy is the idea that democracy belongs not just in politics, but in the economy as well. There’s a paradox at the very center of our society: we call ourselves a democracy and yet a central part of society, the economy, has very little democracy in it at all. Workers do not elect the managers of their firms. Bankers do not allocate finance with any accountability to their communities. Investment decisions are not made with any citizen participation. That’s the philosophical paradox that After Occupy investigates. There are real, concrete examples of democratic alternatives in the economy out there, such as worker cooperatives in Spain and Italy, public banks in India, participatory budgeting in Brazil, capital controls in Malaysia, and so on. Ultimately, these alternative practices might be woven together to constitute a fundamentally different kind of society – a truly democratic one.

What exactly is a worker cooperative?

Worker co-ops are businesses that are owned and controlled entirely by the workers themselves. Workers elect the management on a one-person one-vote basis, just like we elect politicians into government. Probably the most famous co-op in the world is Mondragon in Spain. It started in 1956 with only five workers, and today employs over 80,000 people, with assets of over €35 billion. In addition to being far more democratic than conventional corporations, co-ops have two other important advantages. First, they have far less inequality of wages. In the United States, the average CEO makes 300 times the average employee of his or her company. For co-ops the ratio rarely exceeds 3:1. If co-ops spread, society as a whole would become significantly more equal too. In addition, co-ops also have far better job security. Instead of simply firing people in a recession, co-ops act in a much more humane way, usually by collectively agreeing to reduce their hours or take a pay cut across the board, instead of laying people off. That’s why in this last recession Mondragon has fired far fewer people than other Spanish firms. So if we had more co-ops here in the United States, the recession would have been far less devastating.

Are co-ops economically viable?

Absolutely. Economists have now been studying co-ops for over 30 years, and the conclusion is that worker co-ops operate with similar levels of efficiency to conventional firms. These results have been found again and again, in the United States, Uruguay, France, Italy, Spain, Denmark, the United Kingdom, and Sweden. Perhaps the most compelling evidence of viability is Northern Italy, where co-ops are more prevalent than in any other part of the world. In Emilia Romagna, for instance, they represent a substantial 12% of the region’s GDP, many co-ops have been around for decades, and the co-op sector dominates in a number of industries including construction, wine making, and food processing.

In After Occupy you argue that the current system of investment is undemocratic. What exactly do you mean?

The investment decisions that are made today — building highways or high-speed trains, condos or social housing, tar sands or green businesses — fundamentally determine the kind of society we will end up with tomorrow. Investment determines our future, which is why it must be accountable to us, the public. How could this happen? One important example is participatory budgeting, where local neighborhoods get to decide themselves on the kind of public infrastructure spending they want to see. In terms of finance, bank regulation is an obviously important first step. But over the long term, what is needed is a public banking system so that finances are allocated according to public need, not just according to private profit. Just like we have an electricity system and a post office that serves public needs, we need finance to do so as well (so that banks invest in poor communities or into green businesses – things that private banks will never do). At the end of the day, finance is simply too important for our future to be left to the banks.

Is having a true economic democracy feasible or is it simply a utopian?

Every proposal that is made in this book is based on real concrete examples. Worker co-ops already exist, as do public banks, participatory budgeting, etc. So we know there is absolutely nothing impossible about any of them – the institutions work. The difficult part, of course, is expanding them and bringing successful examples over from other countries. Some reforms (such as regulating the banks), are possible in the short-term; others, like building a large co-op movement, are the project of a generation. But the fact that we can see real-world examples of these things means that they are not at all utopian. With sufficient political will, a democratic economy is entirely within our reach.

Tom Malleson is the author of After Occupy: Economic Democracy for the 21st Century and is an Assistant Professor in the Social Justice and Peace Studies program at King’s University College at Western University, Canada. He is the co-editor of Whose Streets? The Toronto G20 and the Challenges of Summit Protest and the author of Stand Up Against Capitalism (forthcoming).

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By Michael Blair QC, George Walker, and Stuart Willey

Almost every day has brought a fresh story about investment markets, their strengths and weaknesses. Misreporting of data for calculation of LIBOR, money laundering with a whiff of Central American drugs trading, costly malfunctioning of programme trading mechanisms which brought the trading company to its knees, reputational damage inflicted by as yet unsubstantiated accusations of illicit financing in breach of international sanctions… the list goes on and on.

Toronto Financial District. Photo by Alessio Bragadini, 23 June 2009. Creative Commons License.

The list of problems, for firms, and in some cases for their customers as well, prompts some reflections about the role of investment markets in our society and about the relationship between markets and their regulation. Some years ago, in the latter part of the last century, it was fashionable for academics and practitioners alike to put their trust in the strength and reliability of market mechanisms. The experience in earlier decades of the hard discipline of the money markets no doubt added to this. For example the humiliation of the forced departure of the United Kingdom from the former European Monetary mechanism (EMU) in the 1980s reinforced the beliefs of many in the power of the markets as a way of finding and pricing out inefficiency and restoring a new equilibrium at a different point on the scale.

To the majority, therefore, the proper role of regulation at that time was essentially limited to cases of market failure. Most of the work in the public interest could be done by the markets themselves. They might, of course, need some help from the regulators to ensure proper disclosure, with a view to sufficient, and non-discriminatory, access by market users and commentators to market information. But if there was “sunlight” in the market, then that more or less guaranteed the “hygiene” of its mechanisms. From that concept came “light touch” as a means of describing a system of financial regulation that basically left it to well informed markets to function for themselves.

Not all agreed at the time with this general approach. There were honourable exceptions, whose only consolation since has been the (frequently best left unsaid) phrase “I told you so at the time”.

How things have changed since then! A rapid U-turn in public and political thinking has brought demands for sterner and more intrusive regulation. The insidiousness of human greed and of lack of foresight is now widely recognised and needs to be restrained. The market economists now accept that there is a real, and central, role for discipline, including both its punitive and its deterrent aspects as well as the benefits it brings in excluding the dangerous from the playing field altogether. The change has even led our politicians to embark on structural change to restore a previous splitting of retail regulation from the upper reaches of financial services. The case for this change has been based on a hope of better focus of the two new bodies on the two sectors, though the underlying motive appears more to be a desire to change something simply because it is thought to have failed.

Splitting in the public interest also seems likely to be required in the major banks as well. The “Vickers” reforms look set to require the banking industry to function in two separate ways, with required distance between the investment banking arms and the general consumer-based borrowing and lending functions.

Another consequence is that “enforcement” is once more central to the world of regulation, rather than seen as a stick kept, as far as was possible, in the cupboard for occasional use only in the most serious circumstances.

We have now arrived at a new post-crisis period of great challenge but also of potential opportunity. We seem to be set for a number of difficult coming years, during which the markets will be dominated and constrained by austerity, continuing uncertainty and risks of instability. But markets and economies tend to recover over time. We must hope that the politicians, central banks and regulatory authorities have learned all of the necessary lessons from the recent crises to prevent instability or, at least, better to manage and contain the risks of it.

Michael Blair QC, Professor George Walker, and Stuart Willey are the editors of the new edition of Financial Markets and Exchanges Law. Michael Blair QC is in independent practice at the Bar of England and Wales specialising in financial services. Previously General Counsel to the Board of the Financial Services Authority. Queen’s Counsel honoris causa 1996. George Walker is Professor in International Financial Law at School of Law, Queen Mary University of London and is a member of the Centre for Commercial Law Studies (CCLS). He is also a Barrister and Member of the Honourable Society of Inner Temple in London. Stuart Willey is Counsel and Head of the Regulatory Practice in the Banking & Capital Markets group of White & Case in London. Stuart specializes in financial regulation focusing on the securities markets, banking and insurance.

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By Edward Zelinsky

Like many of us, President Obama is a Warren Buffett fan. Most prominently, the president advocates, as a matter of tax policy, the so-called “Buffett Rule.” This rule responds to Mr. Buffett’s observation that his effective federal income tax rate is lower than the tax rate of Mr. Buffett’s secretary. In President Obama’s formulation, the Buffett Rule calls for taxpayers making at least $1,000,000 annually to pay federal income tax at a 30% bracket.

President Barack Obama and Warren Buffett in the Oval Office, July 14, 2010. Photo by Pete Souza. Source: Executive Office of the President of the United States.

In his most recent letter to the shareholders of Berkshire Hathaway, Mr. Buffett makes another provocative observation. However, Mr. Obama has so far ignored this most recent observation from the Oracle of Omaha. Addressing the nation’s continuing housing malaise, Mr. Buffett wrote:

A largely unnoted fact: Large numbers of people who have “lost” their house through foreclosure have actually realized a profit because they carried out refinancings earlier that gave them cash in excess of their cost. In these cases, the evicted homeowner was the winner, and the victim was the lender.

In contrast, the dominant narrative about the national mortgage crisis focuses upon the banks which, the narrative goes, knowingly induced homeowners to borrow money the banks knew the borrowers could not repay. The banks then sold the resulting mortgages to unsuspecting investors who were misled by the banks and by the rating agencies which put their respective seals of approval on these unsound mortgages. Banks subsequently compounded their misdeeds by engaging in widespread abuse while foreclosing on the homes subject to these mortgages.

This anti-bank narrative underpins the recent settlement among the federal government, the states and five major lending institutions (Bank of American, JP Morgan Chase, Citibank, Wells Fargo and Ally Financial, previously known as GMAC). Under this settlement, the banks will give a total of $25 billion to homeowners who have been foreclosed upon or who are in danger of being foreclosed upon.

This anti-bank narrative has had legs because there is much truth to it. We now know, for example, that many banks lent money with optimistic public faces at the same time that bank executives knew the loans were unsound and overly-risky.

However, Mr. Buffett’s comments reveal the incompleteness of the anti-bank narrative; many borrowers were culpable along with the banks. It takes two parties — a lender and a borrower — to make a bad loan. Most Americans know a friend, relative, or neighbor who opportunistically gamed the mortgage system during the pre-recession bubble, borrowing against the bubble’s continuation and spending the borrowed funds for personal consumption. As Mr. Buffett suggests, to declare that borrower a victim is to mislabel a willing player in the nation�

With yet more stories in the press about banks, bailouts, recession, and the economy, I wondered what the new edition of The Little Oxford Dictionary of Proverbs had to say about money. Unsurprisingly, it’s something that has preoccupied people for a very, very long time. Here’s a selection of money-related proverbs from across the centuries.

Cash is king.
Modern saying, summarizing the position in a recession.

Bad money drives out good.
Money of lower intrinsic value tends to circulate more freely than money of higher intrinsic and equal nominal value, though what is recognized as money of higher value being hoarded; English proverb, early 20th century; known as ‘Gresham’s law’ from Thomas Gresham (d. 1579), English financier and founder of the Royal Exchange.

The best things in life are free.
English proverb, early 20th century, originally from the title of a song (1927) by Buddy De Sylva and Lew Brown.

Get the money honestly if you can.
American proverb, early 19th century; the idea is found in the classical world, in the poetry of Horace (65–8 BC), ‘If possible honestly, if not, somehow, make money.’

He that cannot pay, let him pray.
If you have no material resources, prayer is your only resort; English proverb, early 17th century.

Money can’t buy happiness.
English proverb, mid 19th century.

Money has no smell.
English proverb, early 20th century in this form, but originally deriving from a comment made by the Roman Emperor Vespasian (AD 9–79), in response to an objection to a tax on public lavatories; compare Where there’s muck there’s brass below.

Money is like sea water. The more you drink, the thirstier you become.
Possession of wealth creates an addiction to money; modern saying.

Money isn’t everything.
Often said in consolation or resignation; English proverb, early 20th century.

Money is power.
English proverb, mid 18th century.

Money is the root of all evil.
English proverb, mid 15th century, deriving from the Bible (I Timothy 6:10), ‘The love of money is the root of all evil’.

Money, like manure, does no good till it is spread.
English proverb, early 19th century; the idea is found earlier in the Essays of Francis Bacon (1561–1626), ‘Money is like muck, not good except it be spread.’

Money makes the mare to go.
Referring to money as a source of power; English proverb, late 15th century.

Money talks.
Money has influence; English proverb, mid 17th century.

A penny for the guy.
Traditional saying, used by children displaying a guy to ask for money towards celebrating Bonfire Night; a guy is an effigy representing Guy Fawkes, a leading conspirator in the Gunpowder Plot to blow up James I and his Parliament in 1605, which is traditionally burned on 5 November, the anniversary of the discovery of the plot.