ABCT: The role of both the entrepreneur and banker?

Economics Economics Questions
1

From the “Myth of Economic Bubbles” thread, there has been much discussion about how entrepreneurs would or would not behave. It’s true, the entrepreneurs are key to ABCT and AE in general, but shouldn’t we also consider how bankers behave when they see their excess reserves increasing due to the Fed’s intervention?

I’m not talking about a period like today when excess reserves have ballooned due to the Fed, but the bank’s capital base has been wiped out by bad loans. Banks do not lend under such conditions.

I’m talking about the beginning of a period like 2002; when excess reserves were rising, again due to the Fed, but the capital base was intact. Banks were pushing hard to start lending, bankers were threatened with their jobs if they did not get the loans pushed out the door (I witnessed this).

Not only did the interest rate decrease, but amortization periods got longer, LTV (loan to value) ratios declined. Banker’s actively call on entrepreneurs. The terms kept getting “sweeter” until the deal was just too good to pass up.

By 2008 it was all over. Malinvestment exposed. Austrians understand the story.

The interest rate, decreased through intervention by the Fed through creation of excess reserves, influences both banker and entrepreneur. This has a bearing on the rational expectations theory as a refutation to ABCT, I would think.

My questions:

  1. Did Mises, Rothbard, et al, discuss the role of the banker in the ABCT?

  2. Does this have a bearing on the rational expectations theory as a refutation of ABCT, ie, both banker and entrepreneur have to be taken into account, not just the entrepreneur?

2

  1. Both banker and entrepreneur do “human action” so why make the difference? Everybody is an “entrepreneur” in AE.

  2. I don’t see how the banker’s incentives aren’t part of ABCT - bankers just pass the easy credit into a bubble if they central bank let the money pass via the bankers. All AE says is that bankers will react to financial incentives as you do.

Also, there is nothing rational about not getting the credit if you know it’s a fake boom, because you can use the option markets to (re)finance that part of your investments with a shorter time horizon than the expected fake boom. So well functioning credit markets (bankers) are the reason the rational expectation critique is wrong!