Sunday, July 22, 2012

A Keynesian Economist Melts During the Robert Wenzel Show

This is by far the most difficult Robert Wenzel Show interview I have conducted. The guest of the show, Robert Shapiro, attempted to deliver a monologue. It was difficult to get a word in edgewise and further, on a number of occasions, he made statements that were simply untrue. Below I reference, a number of facts that will provide clarity to the interview, given some of the off-the-wall statements made by Shapiro.

One of Shapiro's current major claims is that the LIBOR "scandal" is  such a mess that it "could be the biggest financial fraud in history."

I don't doubt that some banks may have tried to manipulate LIBOR, at different times. When money is involved, people are going to try the game the system. However, it would be very difficult to game the system anywhere close to the degree Shapiro suggests. He's a revolving door government-private sector operator who will take any opportunity to call for more government regulation.

Here are a few notes that will help you in understanding the discussion between Shapiro and me. Shapiro, himself seems to concede there wasn't much "manipulation" before 2007. He writes:
From 2000 to 2006, LIBOR rates averaged one-quarter of one percentage point above Treasury rates.
In his writing and during my interview, he seems to want to imply that the climb in the LIBOR rate in 2007 was suspicious. He writes:
In 2007, however, that spread more than doubled to nearly two-thirds of a percentage point, and their movements up and down did not track each other so closely. By 2008, the difference in the rates was five times what it was in 20002006, averaging 1.3 percentage points, and the up-and-down movements of the two rates no longer tracked each other.
When I confronted him with the fact that 2007 was the start of crisis in the banking sector, he ignored my statement, and tried to push the start of the crisis into 2008. He did this because it gives him the ability to claim that the climb in LIBOR in 2007 was a manipulation and not because of market forces. However, if we look at a timeline compiled in 2008 by Bloomberg, it is obvious the crisis started for banks in 2007 and would justify a climbing LIBOR, as the markets viewed bank paper as more risky.

Here's the Bloomberg and the facts Shapiro chooses to ignore during the interview:
The following is a timeline of events that led to the current global financial crisis.

March 5, 2007: HSBC Holdings Plc, Europe's biggest bank by market value, says the U.S. subprime market is ``unstable'' and now in a ``downturn,'' making it the main drag on company earnings.

March 29, 2007: HSBC Chairman Stephen Green says the U.S. subprime mortgage services division will be ``run down significantly'' as the bank tries to recover from loan losses.

April 2, 2007: New Century Financial Corp., which specialized in loans to people with poor credit, files for bankruptcy protection after being overwhelmed by customer defaults.

July 17, 2007: Investors in two Bear Stearns Cos. hedge funds that invested in collateralized debt obligations backed by subprime mortgage loans are told there is no value left in the funds, wiping out $1.6 billion originally invested.

July 19, 2007: Federal Reserve Chairman Ben S. Bernanke tells the U.S. Senate's Banking Committee that there may be as much as $100 billion in losses associated with subprime mortgage products.

Aug. 9, 2007: BNP Paribas SA, France's biggest bank, halts withdrawals from three investment funds because it can't ``fairly'' value their holdings, as concern over U.S. subprime mortgage losses roils credit markets.

Aug. 17, 2007: The Fed lowers the interest rate it charges banks and acknowledges for the first time that an extraordinary policy shift is needed to contain the subprime-mortgage collapse.

Aug. 22, 2007: Countrywide Financial Corp., the biggest U.S. mortgage lender, sells $2 billion of preferred stock to Bank of America Corp., the biggest U.S. bank by market value, to bolster its finances.

Sept. 7, 2007: The three-month London interbank offered rate, or Libor, the rate banks charge each other for dollars, rises to a seven-year high, signaling efforts by central banks to free up lending are sputtering.

Sept. 14, 2007: Northern Rock Plc says the Bank of England agreed to provide emergency funds to ease a ``severe liquidity squeeze'' sparked by U.S. subprime mortgage defaults following the first run on a British bank in more than a century.
Shapiro also dismissed the notion that it was the Bank of England that was behind Barclay's move in 2008 to submit lower bids. He painted an absurd picture of BOE just checking up on Barclays. But here' how the UK's Telegrapgh explains what went down:
The release of the emails, first seen by ITV News, came minutes before Bank of England governor, Mervyn King, and his deputy, Paul Tucker, faced MPs investigating the Libor scandal that has engulfed Barclays.

John Mann was reported as calling the emails, obtained by through a freedom of information request, "explosive" and showed the central bank in 2008 encouraging the three bank to lower Libor.

Sent on Wednesday May 28, 2008 with the subject 'Libor', an email from Mr Tucker to Bob Diamond, former Barclays chief executive, reads: "Have spoken to HSBC and RBS, Stuart and Johnny. Sense similar across all three of you. I encouraged contact amongst Mark Dearlove peer group."
When you listen to the clip, I'm sure you will be amazed as I was that Shapiro claimed this was just the BOE checking up on Barclay's. It's another case of Shapiro painting Barclay's in a negative light, so he can call for more regulations.

BTW, here is the reference to Shapiro calling American conservatives (I really think he means free market advocates) "childlike":
Yet, the refrain that the big banks know best remains the default position of most American conservatives and many policymakers. This childlike faith will be tested by the new scandal swirling around some of the most basic interest rates in the global economy, the LIBOR or London Inter Bank Offered Rates.
Yet at the same time he also wrote this:
All of the obvious parties that might have done something about it the Fed and the SEC, for example, or the Financial Services Authority in Britain apparently looked the other way.
And in his conclusion:
So long as big finance will do almost anything to goose its own profits and bonuses, self-regulation is a dangerous myth. It should give way to sound law enforcement, which in economic terms is government regulation.
I challenged him and said that his view might be considered childlike since he was calling for more government regulation, even though he stated government agencies had already "looked the other way"

I then went in for the kill on his view that it was free markets (or as he calls it "self regulation") that caused the surrounding crisis. These Keynesians that state it was free markets that failed, generally have no idea  how much government money manipulation via central banks is going on during these periods of so called "failure of free markets." The truth is there is heavy manipulation of money supply (and therefore interest rates), but the Keynesians seem to have no clue. I tried to draw out this cluelessness by questioning of Shapiro and this is where he hangs up the phone as he realizes he is getting trapped.

(One final note: During the interview, a third voice is heard for a short bit. That was the voice of The Robert Wenzel Show executive producer Chris Rossini. He provides the name of Diana Carew, who works for the Progressive Policy Institute, where Shapiro was a co-founder. I was comparing her domineering interview style with that of Shapiro's, where they both attempt to monopolize the interview time. Here is the clip with Peter Schiff.)

Here's the Show:

Here's the podcast version:

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and here's a direct link.


  1. I just turned on iTunes and the Robert Shapiro interview was miraculously flowing into my iTunes library.

  2. Those in Shapiro's camp view government run by bad guys and government run by good guys as distinct entities and thus their arguments in favor of more government will always be right in terms of just putting the good guys in. In their view when the bad guys get in, governmental regulatory failings are the result of a public/private conspiracy but when the good guys are in its the result of human error, resources stretched too thin, not enough fire power and too small of a budget. These people are (although most often unwittingly) tools of the oligarch. While the guy on the street and so many people like Shapiro think the oligarch's goal is to suck up all the wealth in the world, they overlook their real goal which is wealth (power) preservation above all else. To that end, they desire a strong government with broad regulatory powers which provides them with the tools they need to protect their wealth and control those forces that could destroy it (ie competition, rouge foreign governments, economic cycles, etc). This has always been the driving force behind the oligarch and their association with Progressivism.

  3. Robert Shapiro is one of those guys who moves his mouth a lot but says very little.

  4. Love how Shapiro asks "Which measurement?" when Robert asked about money supply.

    Did Shapiro know the other measurements, but not M2 ???


    And this is an advisor to the IMF?

  5. We can assume the condescension in Shapiro's voice comes easily. Otherwise the energy to sustain it continuously would be too draining. Especially choice was his brushback of foolish dissenters by invoking the high authorities of Harvard, Stanford, and Chicago and their bogglingly-sensitive real-time "event studies" of prices.

    It is fun occasionally to see these elitists, accustomed as they are to holding court unchallenged and to riding high on their impenetrable but oh-so-impressive resumes, withdraw in a huff when they start to see how far down they are being taken.

    But if I may offer a view from the peanut gallery, in the long run RW would have far more impact if he took the opportunity of the Robert Wenzel Show to cultivate a more courtly manner. Sharpen the mind, smooth the elbows.

    I say this for purely selfish reasons. With a smoother style, RW likely would find guests more plentiful, giving listeners more chances to savor interviews such as this one, without the abrupt ending.

    Moreover I say this as someone who has no claim to such manners myself and thus understand all too well the resulting limitations.

    1. In response to your courtly manner comment, I think Wenzel does a fantastic job just being himself. People like Shapiro are constantly courted, with the establishment media always licking his boot.

      Wenzel merely makes an emphatic point, and Shapiro accused him of yelling at him! Total nonsense.

      Then, towards the end, Wenzel uses Shapiro's own words against him, and Shapiro runs away.

      Had Wenzel sat back (like just about every other interviewer Shapiro has faced) this would have been the most boring & blabber-mouthed show ever made.

      Wenzel saved the show by just being himself.

    2. What I would like to see is a mix of the two. I like it when these 'experts' are allowed to talk themselves into a corner without even realizing it. I think if Wenzel had more discretely allowed the guest to continue looking like an idiot, allowed the idiot to espouse all of his idiocy, then do a summary monologue at the conclusion pointing out all of the holes in the guest's argument, without allowing the guest to interrupt (perhaps even after the guest has left), that this would yield a more thorough balking of the positions.

      A friend of mine who spent forever in public colleges is an expert at dealing with bureaucrats, and the rare chance to watch him deal with them was always a treat. It is definitely better to let them do all the talking, because when they are talking, they aren't thinking, and if you are good, you can manipulate the conversation to go wherever you want.

    3. The problem with a guest like this is if Wenzel doesn't stop him he will babble on in all sorts of directions that have nothing to do with the essence of the topic. If you study this interview and the Schiff-Carew interview, they just both talk on and on. This is a taught technique used to absorb air-time and prevent an aggressive host from asking questions.

  6. That jerk actually conflated money supply with velocity. Why is it that these guys protect their viewpoint with such anger? What ever happen to diversity of thought? Statist are so closed minded and pompous!

  7. "One of Shapiro's current major claims is that the LIBOR 'scandal' is such a mess that it 'could be the biggest financial fraud in history.'"

    Max Keiser is grinding on this, too, along with AGW. RW should try redirecting Keiser during an interview.

  8. Back in the day when the alchemists were practicing their "science", they too were presumed above reproach by the common man. Often times they were hired and financed by the government and viewed as critical to the prosperity thereof. If you had told them that what they were after was impossible or that they were totally wrong, you would have been chastised by them as an intellectual pygmy for doubting them and their science. Shapiro and so many other's in his profession are the modern day alchemists. Like the alchemist, modern day economists are more interested in manipulating than studying.

  9. What a boring asshole. I could barely stand listening to him drone on and on, but the payoff at the end was worth it.

  10. That rambling lecture crap is one person's meat I suppose. It happens to be poison to me.

  11. Ummm uhhh ahhh ummm ammm ummm... what a piece of work that guy was. Boring interview thanks to Shapiro, but it was worth the payoff at the end, thanks Robert.

  12. The file isn't found on your podbean site, so it's not coming into my RSS reader. Even going to the link (, you don't find a link to the sound file. Is there a better RSS feed to use, like the iTunes one?

  13. It sounds like this man is not used to the experience of having his core beliefs questioned. He's probably used to having everything he says reaffirmed by sycophants in his ambit. He also likely didn't understand where Wenzel was going with his questions about the money supply. Either way, it's not polite to hang up like that, and it doesn't befit someone with his academic creds.