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The Blind Spot podcast: Episode 3 with Frances Coppola

Screenshot 2022-07-20 at 10.10.46

We would have had another episode of the podcast out sooner, but Junseth got taken out for a few weeks with Covid.

But finally, we’re back!

In the latest edition of the Blind Spot podcast we are joined by Frances Coppola, nocoiner extraordinaire and occasional director of epic films about the mafia. (Not really on the latter point, but we like to pretend).

We chat about the demise of crypto financial firms Three Arrows Capital and Voyager, but also turn to more profound points like how the Scottish pound operates a lot like a stablecoin system. There’s also a significant discussion about whether this time in crypto is a bit like 1907.

The last time Junseth and Frances paired up was on stage at FT Alphaville’s Vaudeville show in 2019, in a charming musical rendition of that song that Kermit the frog sings in the Muppets, but adapted for crypto audiences. Sadly, there’s no singing this time.

Once again the chat extended into nearly two hours, which is way more than most people can take. So to help audiences navigate the points of interest here are some conversation markers:

2:45 – the crypto collapse chronology
6:30 – Three Arrows
10:00 – Is it 1907 or 1996 in crypto
13:00 – How Sam-Bankman Fried is the new JP Morgan.
18:30 – Nothing new under the sun
21:00 – Crypto’s one utility is being a financial flight simulator
27:00– Michael Saylor’s mortgage your house to buy bitcoin advice
34:00 – Crypto’s Big Bang equivalent
38:00 – Old money vs New money
40:00 – Florida is the new financial centre of the world
45:00 – Voyager’s unwinding
50:00 – How FDIC insurance actually works
1:05:00 – Scottish freebanking
1:15:00 – GFC
1:23:00 – The cost of french chateaux
1:25:00 – House building norms
1:27:00 – Energy shortages
1:28:00 – MMT perspectives on resource constraints
1:35:00 – CBDC account money
1:37:00 – What are the options for Scotland
1:41:00 – The UK’s own renegade independence movements
1:47:00 – ABBA Avatars and the Metaverse
1:50:00 – Gulliver’s travels
1:52:00 – Why the metaverse is a modern opium den

Thank you to Horatio Gould for the editing and graphics.

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4 Responses

  1. What would an independent Scotland do with the banks ?

    No banking licence unless :-

    Alongside the Job Guarantee are the Mosler Mechanics for banks. These regulate the asset side of banks and prevent the banks creating another Minsky Moment. The job of a bank is to promote the capital development of the economy. That is its public purpose; the job it is licensed to do. All other activities that conflicts with that purpose must be prevented.

    For banking to be effective it must be boring — bowler hat boring. The job of a bank is to provide capital development loans to the economy based solely upon credit analysis. All other activities deflecting from that purpose are Ultra Vires.

    That means:

    Banks can only lend directly to borrowers for capital development purposes (i.e. business credit lines and household loans), and the banks keep those loans on their books until cleared.

    Banks must operate on a single balance sheet. No hiving things off into ‘off balance sheet’ subsidiaries to try and hide them.

    Banks cannot accept collateral. Collateral is a fixed charge over an asset as an insurance policy and aligns the incentives of banks with those possessing assets, not ideas. It stops banks being capital developers and turns them into pawn shops. That is the wrong alignment of incentives. We want loan officers with skin in the game. Their success should depend upon the success of the borrower. Banks should line up in insolvency with the other unsecured creditors (and importantly behind the remaining preferential creditors — employees).

    Depositors are protected 100% at all amounts. A depositor in a commercial bank is holding nothing more than an outsourced central bank account. They are not investors in the bank and should never be treated as such.

    Regulation is provided by the bank resolution agency, which is a public body funded entirely by government. There is no charge or levy to the banks for the operation. The job of the bank resolution agency is to ensure the banks are properly capitalised given their loan book and declare them solvent. If they are not, they take the bank over and resolve it with any excess losses absorbed by government. This aligns the incentives of the regulator. If they get the solvency calculation wrong and the capital buffers exhaust, the regulator stands the cost.

    The Central Bank provides unlimited, unsecured lending to regulated banks at zero interest rates. Collateral serves no purpose since the bank has been declared solvent (and therefore there is no reason for it to be illiquid), and collateralised Central Bank lending just shifts the losses to depositors who are protected 100% anyway.

    Once you get rid of interbank collateral and funding requirements, you get rid of one of the final excuses for keeping Government Bonds. National Savings annuities for pensions (allowing retiring individuals to receive a secure lifetime income) granny bonds would get rid of the final one. Transferable instruments that confer government welfare on the owners do not serve the public purpose. Government welfare receipt is a social decision, not a market driven one.

    As the asset side is heavily regulated, you want the liability side to be as cheap as possible. Unlimited central bank access ensures liquidity for depositors and allows lending-only banks to arise. It gets rid of the Interbank overnight market and replaces it with central bank overnight accounts. It puts the Central Bank ‘in the bank’ as a major investor — with open access to the commercial bank’s loan book via the work of the solvency regulator.

    All levies, liquidity ratios, reserve requirements and the like are eliminated. The cost of maintaining the collateral system is eliminated. The result is loans at a low price with the quantity restricted solely by credit quality. As an economy heats up, credit quality declines and loans become restricted — systemically preventing the Ponzi stages of finance that lead to a Minsky Moment. Proscribed banks, forced to rely on credit analysis for profit, help prevent a boom by issuing less credit as project quality declines.

    You get a natural and steady withdrawal of funding that is far more surgically targeted and responsive to local conditions, than the carpet bombing approach of interest rate adjustment.

    This leaves the payment system, which should be as costless as cash and clear just as instantly to eliminate transaction frictions. Whether that should be publicly provided, or remain outsourced to the banks is an open question. Depositors are a cost to the bank and would effectively be a tax, but leaving them with the banks would give them an incentive to get the cost of clearing provision down. It may boil down to a political question that depends upon your view of the effectiveness of public and private provision. Lean towards an Open clearing system created by the state (or even states) and available to all on an open licence. We want one good clearing system like we have one good Linux.

    Banks are currently too complicated, too large, too impersonal, too intertwined and systemically dangerous. They need to be simpler, smaller, more local and relationship oriented in scope. All of which are easy to achieve once you adopt the Mosler Mechanics for banking.

    Once again, because there is a Job Guarantee and a government that will use fiscal policy, we don’t need the banks to provide endless credit, any more than we need private firms to provide endless jobs. Banks and firms can be maintained at their appropriate natural size and location as determined by the technological level of the economy and where people actually reside.

    A win, win for an independent Scotland.


  2. For true independence Scotland has to free float. The way you launch it is really important. Normally the way these things have been launched are on the principles of the gold standard and fixed exchange rates and it was a mistake.

    Scotland doesn’t leave the £. I’m from Glasgow so we just start taxing and spending in the new currency. on a 1:1 basis, if the tax was £1,000 it is now 1,000 in the new currency. If wages were 20K the wages will be 20K in the new currency. Taxing and spending in the new currency. Now you have independent fiscal policy and independent monetary policy.

    It is really important NOT to convert people’s bank deposits from the £ to the new currency. Leave them alone, forced conversion is the mistake launches made in the past.

    So let’s say half the people in Scotland want to keep the £ and the other half want to keep the new currency. If you convert everybody to the new currency those that wanted to hold £’s are very unhappy. They go out and sell the new currency to get £’s again. The currency drops 50, 60%.

    They central banks don’t know what to do so raise interest rates and imports go up by 50% or more. The government doesn’t know how to deal with it and collapses. That is what forced conversion does.

    Leave it alone no forced conversion of deposits. People who want £’s they are happy. If they want the new currency they have to sell their £’s to get the new currency. That makes the new currency stronger and where are they going to get the new currency from. Nobody has any the Scottish treasury are spending and taxing a little bit of the new currency but not enough to cover the demand.

    So now the Scottish government can sell the new currency at a slight premium to those who want to swap their £’s for the new currency. The currency wants to go up but the government sells it at a 1% premium to keep it stable.

    At the same time it is collecting all these £’s that can be used to service any £ debt it had and help it through the transition period. Stop the currency from a very steep collapse. So never do forced conversion on £ deposits or £ bonds that is the key and the mistake previous launches of new currencies made.


    Then you get rid of all the current economic stabilisers and replace them with a job guarentee. Create full employment in Scotland and replace the budget constraint with an inflation constraint. Make sure all If not most takes are already baked into the system on a counter cyclical bases. The budget deficit will be whatever it is at full employment.


    By creating full employment you attract FDI which again wants to make the currency stronger. Exporters are Qing round the block to try and steal some of the effective demand you have just created. Making easier to get the imports you need. You can play them off against each other and some will be willing to discount their own currency to get the trade.

    This notion that you have to export to get the currency you need to buy imports is a myth

    .The default position is that everybody buys with the currency they have and everybody sells for the currency they want to hold. The finance system then gets paid making those desires happen.

    If they don’t then no deal happens.

    There is no need at all for smaller countries to borrow anything. The floating exchange rate will naturally find the level where the finance system can cause the funding to come about to make deals happen. Particularly as that will be driven by exporters with a surplus they need to get rid of somewhere. A new market is perfect.

    What happens, as Fadhel Kaboub and Rohan Grey points out, is that the new market is opened up by local oligarchs, not by democratic government. And that’s where the problems start.

    The debate around this is poor because it fails to address the other important alternative MMT viewpoint which is – to win at international trade you want to import as much as possible for as few exports as possible. Preferably the export that requires no labour to produce – the local currency.

    The job guarentee is the corner stone of MMT for So many different reasons than just full employment.The Job Guarantee wage is only paid to people working in Job Guarantee jobs. The more people on the scheme the more government spending. When they move to private sector jobs that payment stops — which automatically reduces government spending. Creates effective demand rather than aggregate demand.

    It is an ‘auto-stabiliser’. Spending goes up when the economy is down, and spending goes down when the economy is up. Far superior to the current automatic stabilisers.

    So because it is carefully targeted at only the people that need it, and it automatically self-adjusts based upon need, there is no requirement to correct any over spend via taxation on the other side.The result of that is straightforward. The current low tax rates can stay.

    Not only is it a brilliant automatic stabiliser it is a fantastic price anchor also.A crucial point is that the JG does not rely on the government spending at market prices and then exploiting multipliers to achieve full employment which characterises traditional Keynesian pump-priming.It works like any Monopoly price setter you set the price and let it float. Forces companies to compete for Labour and drives up productivity.


    The job guarentee is what makes MMT work. Makes an independent Scotland with a free floating currency work.

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