You have to hand it to those bankers. They are very creative in finding ways to argue that life for them should continue more or less as it did before, despite the spectacular damage that they have exacted on the global economy.
Had the industry put together a reform program, or even fessed up to the damage they hath wrought? Heavens no, it’s clear that if they huff and puff enough, they can block any serious measures. That does not mean that absolutely nothing will happen, mind you. The industry may have to submit to some indignities so that the politicians can say they have collected a few scalps, but these changes are certain to be in areas that have high PR value but will not inconvenience the bankers overmuch.
In fact, the banksters are better situated than they were before. Now they enjoy explicit state support, a huge web of safety nets, and super low interest rates with virtually no strings attached. The onus is on the officialdom to claw back from this industry-favoring position. Even if the financiers have to concede a little ground, they seem if anything to have benefitted from this wreck-the-global-economy exercise. No reason not to do it again.
An egregious argument for doing little to nothing comes from Josef Ackermann, chairman of Deutsche Bank via the Financial Times:
A deluge of financial regulations threatens to harm economic growth, one of the world’s top bankers said on Friday, in what appeared to be the start of a concerted fightback by the industry against feared regulatory overkill.
Josef Ackermann, chairman of the Institute of International Finance, the global bankers’ association, and head of Deutsche Bank, said governments were not paying enough attention to the aggregate impact of the reforms being proposed.
“There is a trade-off between maximising stability of banks and optimising growth of the real economy. That balance [should] not be forgotten,” Mr Ackermann told the Financial Times. He warned that the entire economy would “pay a high price” if regulation went too far.
Is there an iota of proof for this assertion? We are suffering from a financial sector that has become preoccupied with serving its own interests as opposed to providing services essential to modern economies. At least in the US and UK, banks take a larger chunk of GDP than they did in the early 1980s, and that result probably holds across advanced economies.
Has growth been any better in the era of lightly regulated banking than during the immediate post World War II era of heavily regulated banking? Even before you threw in the cost of the global financial crisis, the answer is no. Now you can argue, correctly, that the years right after World War II saw conditions not in place now (rebuilding war-ravaged countries). But we’ve had some special circumstances of our own, namely, two technology revolutions, first personal computers, then the Internet. But the general point nevertheless holds: the premise behind Ackermann’s remark is wildly counterfactual, and the onus should lie with the bankers to prove otherwise.
But instead we get this:
Mr Ackermann complained that the banking sector had not been properly consulted before the latest regulatory proposals were announced at the G20 summit in Pittsburgh, and called for intensive talks before final decisions were made.
“We need to start again with an intensive dialogue between the private sector and the public sector on the strategic questions, on the technical details, including what is the economic price of certain things we are doing,” he said.
Yves here. Now it is reasonable to assume there will be a cost associated with reform measures (charitably assuming they actually come to pass). For instance, calling for banks to hold more capital will raise funding cost. But I don’t see that as entirely negative. Overly cheap credit is what got us into this mess in the first place, and the notion that continued low-priced debt is a good thing (for anyone other than bankers) is spurious. Ackermann’s grumbling may be in reaction by a proposal by the IMF’s Dominique Strauss-Kahn to tax the banking sector.
In general, it is important to recognize that effective insurance is not free. We want effective insurance. But by arguing that imposing any costs on the banks (Ackermann acts as if he is worried about the borrowers, how touching) is a bad idea is tantamount to saying any type of insurance against future financial train wrecks is a bad idea. The worst is that this is probably not mere posturing. Ackermann and his colleagues are no doubt sincerely convinced that the role of their banks, as currently configured, is desirable and necessary.
Ackermann is also negative about reforms implemented on a national level:
He also warned that the global financial system could fragment if regulators in different jurisdictions continued to try to tighten their control over banks “at a local or regional level”….
Global banks aimed to match savings and investments globally, he said. But “we should be very aware of the risk of some sort of fragmentation” into national pools of capital.
Yves here. One can argue this either way. The research of Kenneth Rogoff and Carmen Reinhart suggests that periods of large international capital flows are accompanied by frequent financial crises. Smaller international capital flows are probably pro-stability.
But invoking the “fragmentation” issue is curious, because it suggests Ackerman wants regulations handled on an international, coordinated basis. He may be sincere, or he may recognize that the odds of international cooperation are so low that trying to bring about an international effort is a great way to assure nothing happens.
However you look at it, the fact that the banks who caused this crisis presume they can negotiate with governments as equals is no doubt an accurate reflection of where things stand. Which means that we of the great unwashed can look forward to continuing to subsidize them.
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Ackerman wants regulation to be global, ideally, as it then would be significantly watered down and easy to circumvent (i.e. business as usual) in comparison to what German or EU policy-makers could come up with.
It will be interesting to see who Merkel appoints to head the Ministry of Finance. I have been told that it may be Roland Koch, current Minister-President of Hesse, where Frankfurt is located. A voir.
Agree completely, that was my first reaction when I read the diatribe against local/regional rules, but neglected to say so clearly in the post.
Mr Ackermann told the Financial Times. He warned that the entire economy would “pay a high price” if regulation went too far.
Sounds more like a threat than a warning. These boys will play hard ball if they feel hard done by, after all they have done for us in the past. I mean where would we be now with out their usury on roids, um stone age they must think…eh.
Same old social license issue as with mining company’s in the early 1900 and oil after that, now its the IBs crying foul.
Skippy…after all we did for you *massive debt burden* with out personal respect for the citizens of today and extended now into the future…if my ass could cry…shez.
The optimizing “growth” meme is becoming really tired. As seen with the stonewalling of even the most basic and obvious environmental regulation, this almost always means “growth” when one does not include the unaccounted costs or the costs that are merely pushed into a future accounting period.
You hit the nail on the head when you say, “But by arguing that imposing any costs on the banks (Ackermann acts as if he is worried about the borrowers, how touching) is a bad idea is tantamount to saying any type of insurance against future financial train wrecks is a bad idea.”
I’m glad you are here constantly trying to reframe the debate around logical and consistent principles. Hucksters always benefit from obfuscation. Society benefits when a few fed up souls take the time to unravel the tangled web the hucksters weave.
Ackermann: “There is a trade-off between maximising stability of banks and optimising growth of the real economy.” Nein, there is no trade-off—because top of the financialy system alpha-banks ae not in the ‘growth creation business.’ This is something that they want others to believe; this is something which they may in fact themselves believe; this is not so. The alpha banks—the principal nexus of disaster in our present rolling crisis, and hence the principal focus for reforms—are in the credit intermediation business: they intermediate themselves between the principal source of volume capital flows in a national economy—the Government’s public debt plus the Central bank’s swap windows—and the middie and shortie banks who actually provide credit for ‘real economy’ activity. You see those lesser banks have their deposit bases, yes, but that is just insufficient as a resource to truly play the ‘leveragitation’ game, so they have to go into the capital markets to get ‘other people’s credit allocation’ to play.
What the alpha banks really do is intermediate, and slice off just as much of the money throughput for themselves as they can possibly steal, ahhh deal. ‘Growth’ to the extent to which it is desirable, is ENTIRELY A FUNCTION OF NON-MONEY CENTER BANKS. This distinction is frequently lost because it is the job of the the PR flacks and Beltway bloviators to conflate the banksters and the bankers in any and all discussions. Regarding the money center players, a case could be made (not that I’m going to at this point) that their role in the financial system of an economy, say the US domestic economy, is _entirely parasitical_. They create nothing, they only intermediate and allocate for a price. This has always been what international scale lenders do, the lend to other lenders, and slice off most of the sugar for themselves. Leave it to the bankers and the producers to actually, yah know, EARN something or make something or . . . whatever. What the alpha banksters do is to take something.
So let’s hear no more of his ‘growth’ shibboleth out of the mouths of banksters, it’s meritricious spittle. The banksters tax everyone else for the privilege of their favor. And more than ever the banksters have taken over the national governments presumed to supervise them. Now, the government always has more power in the end, ’cause the Feds got the guns. The oligarchs in Russia found out who was stronger, them or the armed forces. That’s a *whoopsie*. Don’t look to see anything like that here soon. And let’s don’t look to the public who all are busy looking at their shoetops in this. We went by the anniversary of last year’s soft coup in the US where the banksters took over the Government and no one even mentioned it. And the only folks making a noise are busy being racist cranks at the same time which is unlikely to coalesce any functional or desirable mass movement about them. . . . Though that’s what they said about those putzes in Munich. Hmmm.
Growth? Alpha bankers ain’t got nuthing tah do wid it.
Richard,
You say “We went by the anniversary of last year’s soft coup in the US where the banksters took over the Government and no one even mentioned it. And the only folks making a noise are busy being racist cranks at the same time which is unlikely to coalesce any functional or desirable mass movement about them. . . .”
That is simply not true.
There are bona fide protesters who raise their voices against what is happening. They protested last week at the meeting of the G-20 in Pittsburgh. And look what happened to them:
http://www.youtube.com/watch?v=etv8YEqaWgA&feature=player_embedded
http://www.post-gazette.com/pg/09272/1001566-485.stm
I posted a lot more links and information on this thread yesterday:
http://www.nakedcapitalism.com/2009/10/the-recession-is-over-but-the-depression-has-just-begun.html
Now granted, the message of those trying to speak out is being brutally suppressed, so perhpas you aren’t aware of what’s going on.
But just because the MSM doesn’t report it, does that mean it isn’t happening?
About the best we unwashed can hope for is that there will be a military coup by someone who wants to restore the republic. It didn’t happen in Rome and I doubt it could happen today.
DownSouth,
Per this and your previous reference to this event, the protests of the 60s have been studied and mechanisms have be put into place, they will not be allowed to happen again full stop. Only demonstrations that are beneficial to the cabal are permitted and thats the sweet part, large or loud demonstrations by people that drank the koolaid will be use as the new hero’s to return America to its former glory muhahaha.
Any one looking for accountability, facts or real debate will meet the paramilitaries and if pushed far enough find bags over their heads and transported to holding facilities to be processed for future debasements.
Skippy…there are DoD FM/studies on this.
If Al-Qaeda, the North Koreans, or the Iranians had organized and implemented the Credit Bubble and subsequent crash as an attack on the West and Capitalism, we would have responded by turning the perpetrator’s country into a glowing mound or radioactive rubble.
Instead, we bail out the perpetrators of the largest fraud and theft in history and reward them with massive bonuses and ever larger companies. We will never reign them in because doing so would be an admission of regulatory failure and an accusation of guilt.
The leaders who got us into the situation should be tried and executed for treason and crimes against humanity. The list of criminals is obviously long and starts at the very top and goes pretty much right to the bottom. Frankly, would the last five or six innocents please turn out the lights on the way out?
Since when banking is an ‘industry’?
Another term that smells there is ‘fragmentation’, like in “you hard disk is fragmented”. Ahem… bad news for sure.
I guess this is not your choice of words, Yves, but the usury industry’s.
I’d be willing to bet money that Mr. Ackerman believes his toll both is somehow so intrinsic to the very viability of money flow in society that the downstream institutions and ultimate loan recipients wouldn’t get optimal credit without the tax his beast extracts along the way. His virtuous beast is performing a public service, and shouldn’t it be held in better regard for that? Honored even?
It points out one of the primary — at least to my slightly uninformed but nevertheless opinionated mind — unresolved theoretical knots in the contemporary voodoo that stumbles around like a zombie wrapped in the rags of “economic/finance/central banking theory.” And that is the optimal role and size of credit in an economy.
It’s clear this has never been resolved over centuries. The osscilation between too much credit being extended and too little. And it’s never objectively clear, a priori, when credit is too easy, although there are inevitably signs (like NINJA loans) that it is. But the inherent optimism of human nature always wants to believe. Without a vision, the people perish.
And over recent decades, with the democratization of money, it has even become a moral issue: “access to capital”. The inherent right of the rich shouldn’t be witheld from the poor. As if debt itself is capital — which it is to a point — instead of a potentially hopeless ball and chain that, by the laws of inevitability and history, can drag you down and us along with you.
There is something in human nature that believes that if something is good, then more is better and most is best of all. This seems almost like an archetype of consciousness through which reality is filtered and intuited. It’s most active in the American mindset, with our hopefullness and confidence, but I think it’s so elemental as to be universal in varying degrees of restraint.
I see this construct everywhere — fogging the entire field in this debate about the role of financial institutions in society. Mr. Ackerman’s bloviations are powered by it and by the mirror of self-interest. I would bet he is a profoundly unconscious person, awake and convinced, but only inside the dark walls of his own solipsistic dream.
The financial noosphere and its academic accolytes are also so lost in this dream that they can’t find any solid points of reference to navigate these straits. On the one side is too little credit and the anguish of worthy borrowers who can’t find the means to fund their dreams. On the other is too much credit, and the predictable busts the wreck the very dreams that were, for a time, made so very and hopefully real.
How much credit in relation to equity is optimal for a society, measured at both the individual and institutional level — like the mix of air and gasoline in car engine? And what mechanisms of credit extension, what chain of intermediaries, best effect this mix to the benefit of the public good? How can we even define the public good in this context? What trade-offs are intrinsic to these choices, what negative externalities are produced and how can they be minimized? It seems to me these are elemental questions.
Until there are clearer answers that achieve nearly the solidness of ideologies, then we’ll be left with the banksters and their lobbyists ramming their furiously certain and sanctimonious delusional self interest up our collective rears, like the Inquisition witch burners lighting up the sticks, burning with the furious certainty of their own Godly virtue and their selflessness as they burn us alive.
from Felix Rohatyn, author Bold Endeavors: How Our Government Built America, and Why it Must Rebuild Now interviewed by Greg Ip, The Economist
Last aired: March 29, 2009
” … You can’t build a telephone booth without oversight.”
Here here now!
Enough grousing!
Have none of you heard of Divine Right?
After learning the account of the disastrous battle of Ramillies…Louis exclaimed: “What! Has God forgotten all I have done for Him?
–Pierre Schneider, >i>The World of Watteau
” …feared regulatory overkill.”
Fears like maybe reduce finance from 40% of the economy to, say, an appropriate 7% or less since they’ve proven how dangerous and destructive they are to the ‘real’ economy. The ‘real’ economy as in ‘real’ people who produce ‘real’ stuff.
Ackerman’s crapthink is unremarkable, you were expecting something of an admission?
The whole of his argument points to the fact that the only constraint he would accept is that no institution would be too big too fail.
All of this causes me to suspect that we should have had the complete collapse of the financial system. As things are proceeding, we may yet see that event.
We can regulate them or we can tar and feather them. I am being generous in saying they get to pick.
“However you look at it, the fact that the banks who caused this crisis presume they can negotiate with governments as equals is no doubt an accurate reflection of where things stand. Which means that we of the great unwashed can look forward to continuing to subsidize them.”
That is a truly scary statement.
Also, the “they didn’t consult with us” is said as if they had to somehow get the banks permission. hmmmmmmm.
Very scary state of affairs.
Yves,
I am struck by your use of phrase “wreck-the-global-economy exercise”
Indeed, they have benefitted greatly as you point out, the safety nets of unlimited taxpayer support, the doctrine of TBTF is now ingrained so deeply into the collective psyche of mainstream media and politicians it will take one hell of a lobotomy to exorcise it from our mind-set, beliefs and policies (the mass-movement of populists pushing back gov’t suffering from regulatory capture will be required), and not to mention the ability to borrow short term at zero (and possibly negative rates at some point in time) has been a huge windfall the banksters without consequence.
(and to think I once felt sorry for Ackerman back in the 80s)
But back to this curious “exercise” to wreck the global economy.
From what I have been reading in Naomi Klein’ Shock Therapy this morning is that the so-called “free-market” capitalists have actually encouraged crises to bring about “opportunity.” Some might call it “Machiavellian Economics” which seeks destruction for the profit of a few
Let’s take a few choice quotes, January 1993, the economist John Williamson who coined “The Washington Consensus”
“These worst of times give rise to the best of opportunities for those who understand the need for fundamental economic reform.” Yes, the reform this crisis has gotten the banksters explicit gov’t guarantees and cheap money.
“One will have to ask whether it could conceivably make sense to think of deliberately provoking a crisis so as to remove the political logjam to reform.”
Notes Klein “the idea of actively creating a serious crisis so that shock therapy (economic and political reform so-called democratic and capitalist)could be pushed through was now being openly discussed.
In 1995, Michael Bruno, World Bank chief economist, obsereved that there was a growing consensus about “the idea that a large enough crisis may shock otherwise reluctant policymakers into instituting productivity-enhancing reforms….I have emphasized one major theme: the political economy of deep crises tends to yield raise positive outcomes.”
Now, fast forward today, a global crisis caused by the banksters, and yet we expect no radical reform, no positive outcome. In fact, because the financial sector is reconstituting itself same as it ever was, but more highly concentrated, we actually are bracing ourselves for the next great crisis that the financial sector will wreak upon us. Ain’t life grand/rich, when things work out the way they are not supposed to. The scripted idea that this would lead to “nunca mas” positive outcomes, has splattered like an egg hitting a wall.
Bruno goes on “An adverse shock may actually increase welfare…The notion that ‘things have to get worse before they get better emerges naturally.”
Anyways, Yves, this global crisis may actually be an intended “exercise” or “experiment” with more where that came from!