I recently came across some "outside the box" thinking in this regard. To me it makes sense. The fundamental question being asked is why is bank debt better [for all of us] than government debt. Here is a paragraph.
What we are trying to do in this meeting today is to give you a new view of how the real economy works today and teach reality economics, instead of the parallel universe that you have in economic textbooks. At the beginning of Paul Samuelson’s textbook—which is used to indoctrinate students in the United States—he says that the criterion in economic theory is whether its axioms are consistent. This is what I was told when I studied literature in college. If you’re reading a novel, you have to suspend disbelief. You have to believe in the science-fiction or the characters that the author writes and imagine that it’s all consistent. You know when you go to a movie and after you come out of a thriller, or a mystery movie, you think, ‘Wait, a minute. There’s something wrong with that picture. They forgot how it happened. What Mr. Samuelson did not say was that these assumptions have to be realistic. So, instead of learning how the economy operates, students are told how a parallel universe might operate on a different planet, if there were no government, if there were no fraud, if the entire economy operated on barter, if there was no debt, and that everybody wanted to help everybody else, that nobody inherited money, that everybody earned all of the income and wealth that they have. The reality is the opposite, but it seems to be talked about only in novels these days.You'll find a much longer article here http://www.nakedcapitalism.com/2012/04/michael-hudson-on-why-there-is-an-alternative-to-european-austerity.html
If liberals and conservatives want to discuss what works, instead of what is theoretical, I would love to have that discussion. Leftists in general (not necessarily you) in my experience, don’t ask what works, they do what feels good. Does a communist system work? Will raising the minimum wage increase or decrease employment? Will raising taxes take in more money? Will forcing banks to lend to individuals who can’t pay it back be good for the economy? I could list dozens more of questions, those on the left don’t appear to ask themselves.
ReplyDeleteThis article, while making many grandiose claims, is concluding that financial companies that restructure businesses, industries and countries are destroying value . That may sound harsh, but it is simply accelerating what would happen naturally on its own, and enabling those resourced to move to a more efficient place. Look at Japan, they have effectively been in a recession for over 20 years, as they refuse to restructure. What system works better, Japanese style restructuring or US style? That question doesn’t appear to be asked in this article from my brief scan (perhaps it is too busy referring to bankers as parasites, raiders and other kind things).
Having said that, I think a question both the liberals and conservatives should ask (and both largely don’t) is does our central banking system, of printing money, harm society (lets ignore for now that the cause of printing more money, is increased government debt). You and I may agree that disallowing the printing of money, and returning to the gold standard, may be the better system for society – I sure think there is ample evidence.
I confess, I do not know enough about international banking and finance to engage in a comprehensive discussion of all the ins and outs of solutions being proposed. The snippets I do understand leave me quite disturbed. What is pretty apparent to me is that in the midst of recession, bankers [who made mistakes] continue to receive huge salaries [in part (or largely?) because of taxpayer funded bailouts], and homeowners and laborers [not all, but too many] are out on the street.
ReplyDeleteIn the 1980s banks "discovered" that they could make loans to sovereign countries in the third world, and the governments of these sovereign countries "discovered" that they could borrow money. How convenient for both, people trying to help and people who were greedy. On the part of the governments, no attempt was made to involve "the people" in discerning whether debt financed projects were desired, and on the part of the banks, no attempt was made to a) discern whether a government indeed was representing the people, or b) whether the investment was likely to pay back. Ten years later, the project is not paying back, and the bank wants its money. The officials who negotiated the project are gone, so who is left to pay? There was tremendous pressure from the banks that the taxpayers should pay, even though they had practically no culpability in the collapse (or no payback) of the project.
Is there a corrective for this kind of injustice within a capitalist system?
Regarding a gold standard, I completely agree that there need to be restrictions on governments printing money and banks creating debt. What I do not like about the gold standard system is the impetus it gives to gold mining. Gold mining is very destructive to the environment and adds nothing of value to society (other than a medium of exchange). Wouldn't it be better to tie the money supply to some commodity that has real value, not imputed value? Hasn't Ron Paul proposed an alternative?
These myths surrounding what banks do is depressing to me. Your first paragraph seems to suggest your primary disturbance remains large bonuses with tax payer bailouts? That would make me angry as well, but again, the banks paid back their bailouts! If you want to be logical, you should be angry with GM and Chrysler, who took bailout money, padded union contracts – and haven’t paid their money to taxpayers back yet.
ReplyDeleteI don’t really understand your second paragraph.
I think we won’t find much common ground here, because I think at the root you don’t like that many bankers make a lot of money. I hope I am not being inflammatory, I am simply basing this on you valuing equality of results (while I care about equal opportunity). However, where I believe we could find common ground is that since the US left the gold standard in 1968, the amount of credit creation that enabled (for individuals and governments) has caused the debt levels to skyrocket over 44 years. The entire system will collapse, unless something is done soon, but this is a large topic I am not sure we want to discuss here and now
I think you misunderstand my first paragraph. What I am trying to say is that in the hype (or willful ignorance) of the bubble that lead up to the collapse of 2008 there were many actors. There were honest, hardworking people, trying to do their job as best they could, trying to build a future for their family. There were also opportunists who saw, or thought they saw, an opportunity for a fast buck. This describes both rich and poor, bankers and non-bankers. Many, perhaps most, simply responded to the market signals (and the advertising) as they perceived them. In that regard I don't distinguish between bankers and non-bankers.
ReplyDeleteIn the collapse of 2008 many people got hurt. My perception is that few bankers got hurt, but many non-bankers did. (Correct my perception. I have seen very little of this where I live. You have seen much more.) Whether the push to ease credit came from the right or left is irrelevant. The injustice in all of this is that we as a society pay bankers to "read the financial market". Joe Blow homeowner to responds to an easy credit campaign and borrows more than he should, maybe acting foolishly, but he is not totally irrational if he believes his banker when he is told that he is credit worthy; that he can handle the loan. It is more reasonable to say of the banker who gives him the loan, that he should have known better. He gets paid to know better.
I AM upset with GM and Chrysler, as well as with the auto workers union who pressured government into bailing them out. The action contributed to the deficit, but more importantly, it was a subsidy to an industry that should not be getting a subsidy.
Perhaps paragraph two above is irrelevant to the discussion. Nevertheless , I do believe it takes two to make a bad loan. Bankruptcy law acknowledges that. But too often if the lender is powerful and the borrower is weak, the borrower is left with a disproportionate cost of settling the bad loan.
I share your concern about the global (and US) financial system. Without trivializing the concern, it should be noted however, that debt is nothing more than a promise to pay. Because of that, negotiation can go a long way in settling an unmanageable debt. The same thing can not be said of a shortage of food or oil.
Your first paragraph I completely agree with. In fact, the only paragraph I would take some issue with is the second.
ReplyDeleteBankers have been hit very hard. I know of no other industry that has had more lay-offs (other than perhaps homebuilders) than financial institutions. The big banks continue to lay-off people this year. Anecdotally, It seems I spend more than 30 minutes a day (nearly every day) trying to help people that used to have a job in finance looking for a job (many of them senior people). I think the government (both Democrat and Republican) should not have pushed banks to lend more in attempt to increase homeownership. I realize that is a little simplistic, and many other factors are contributing to the mess, but that is the primary cause. A longer discussion would suggest the root cause of the downturn (which I think may continue for a decade) was moving off the gold standard, enabling governments (and individuals) to borrow money in a way never possible historically – which I am suggesting again, to get us to a point of potential agreement. With inflation in check (for now) the Federal Reserve has had every incentive the past 5 years to print money to finance all the government spending (a tool not possible to pre-1968), but this can’t go on much longer.