How Big Banks Became Our Masters
nytimes.com
nytimes.com
For example, health services are largely financialized via insurance. IE, you don’t directly buy health services, you buy insurance which buys health services. You don’t buy a house, you get a mortgage. You don’t support your parents (or colleagues) in their old age, you pay into pension or superannuation schemes. Education via student loans. Monthly expenses via credit card debt. Large ticket items via dealer finance. Public services via national debt…….Companies via private equity. Everything has a financial layer between payment and consumption.
Underlying a lot of this is a relatively simple fact that if debt is available, consumers (from 18 year olds to Finance Ministers) will take it. If loans are available for certain products, more of those products will be consumed.
Another (possibly evil) driver is that governments have chosen financialization as instruments for promoting stuff they want to promote. Need more corn? Crop insurance subsidies. Educate the masses? Subsidise student loans. Promote home ownership? Implicitly guarantee retail banks’ losses. Medical care for all? Tax free(subsidy) insurance. Flood problems? Flood insurance. Poverty? Microfinance.
So, banks got big. This has all sorts of weird effects.
One of the biggest problems in my opinion is the inflationary effect of this process. Real estate prices in many places are simply the amount that a bank is willing to lend buyers. If banks increase the amount a buyer can loan, house prices increase proportionally. IMO, the American healthcare saga is not really about ideology or competence or any of the stuff they talk about. The problem is that after 2-3 generations of wide scale subsidised financialization, prices & costs are so high.
My final thought is that part of the problem is the prominence of finance people in pubic decision making. They know finance. They believe in it. They use it to solve problems. They don’t see baks getting bigger as a problem. It’s kind of like the lawyer problem, who also have a lot of presence in politics. That means the legal field gets bigger all the time.
Indeed, I've read a few articles in NYTimes/WSJ now on the sale of public services in the US such as fire and water services to private equity firms. And the whole thing is told as a cautionary tale about banks and capitalism, which misses the bigger picture in how these things always start.
Typically the problems start because the government was overleveraged from taking on too much debt, typically due to poor financial management fueled by initially cheap capital from bankers operating in and out of government. Then when hard times come they continue to seek the easy answers from the bankers (instead of making hard choices like spending less) and end up selling off public resources giftwrapped in pseudo-market sounding language with very little of the actual benefits of markets: competition, private salaries, flexibility, etc.
These "banks" are famously like an octopus wrapping their tentacles around everything. We have some old effective methods for handling this type of behaviour when it's used improperly in the private sector, and there the harm is limited to a few usually wealthy parties. But it starts to get dangerous when these half-baked financial schemes that have worked in private markets get pigeonholed into government. Critical services like emergency services or drinking water are often ill-suited (and more importantly ill-prepared) to handle the potential downside.
Hopefully one day politicians will learn this lesson and learn to keep things simple in the public sector. Governments everywhere have a consistent track record of not managing money well and have a high-turnover of executives by design, so any complex financial instruments are just setting them up for failure and exploitation. Anything to do with government should be made dummy proof and straightforward. Public services should be run like public services. Mixing of private/public should be the exception, not the standard. And I say that as someone biased towards the private sector.
Sometimes I feel like this "extra layer"/middleman-adding is not only just to enable government interventions but is just fluff added so we could create jobs for those whose skills don't go beyond the typical white-collar worker. I might be wrong, but the image of extraneous University administrators and "not-enough" skilled labor kinda paints this picture.
That's (in a somewhat roundabout way) is similar to one of David Graeber's arguments, you might like his book.
For example, if I have extra money, and I know someone who could ramp up his productivity if only he could make a one-time investment (say, a cow for his farm), then I buy him a cow in return for a share of its milk. Then, to diversify, I can find thirty such people. Then I find someone who can sell the milk for a cut...[1]
Instead of all of that, we have banks, where I just give them the money, and they make the loans (and do screening, credit reporting, foreclosure, etc) and pass me a cut of the returns.
Nothing is wrong with that. The problem is when you have perverse incentives to start with (e.g. in fields like health care, or with lenders who have asymmetric information about the loans in a portfolio there's excessive trust in the vetting), where financialization just puts the same problem on steroids.
[1] Late edit: a better example of the "impure exchange" might be if I wanted to save for my retirement so I raised one more cow than I usually would with the intent to lend it out to others who are still working in return for milk, with the usual frictions like needing to convert to non-milk.
some of this is due to a lack of financial literacy on the part of consumers (financiers know that loans should come with an interest rate, not a charge for the privilege of loaning the money in the first place, but consumers on the whole apparently don't).
but there is also a regulatory mechanism exploited by consumer banks: FDIC insurance. without insurance, people are understandably reluctant to loan money to banks since they don't know if they'll get the money back. so the government (again, understandably) steps in and guarantees with tax dollars that you'll get that money back, even if the bankers are crooks. but of course, that means the government must try to tease out the crooks with a stringent set of tests and regulations around who they'll insure. and just like that, you have an anti-competitive choke point where incumbent banks use the regulations to guard against future competitors by keeping the regulatory barrier high.
(this is just another example of the financialization via insurance that you elucidate)
also, use cash. it's transaction-cost free, anonymous and universally accepted.
but i wish more people would realize how much they neuter competition and lose in actual cash-in-hand by indulging the big banks and not shopping around. make the banks compete for your money by finding the best returns for your cash. it takes a few minutes on a site like http://www.bankrate.com/ to do so.
most consumers have a checking account or two, a couple credit cards, maybe a savings account, a car loan and a mortgage--all things well understood and competitively handled by a credit union. many people tout convenience as their main decision-making factor, but big banks are not any more convenient than credit unions--technology has leveled that playing field. i suspect the real reason we use big banks is our ingrained herding instinct and the psychological safety that implies (however illusory that is).
Yes, if the payments become too onerous or the ability to roll over is compromised (Greece passim), then you have a serious problem, but the whole thing does not magically blow up at a certain level.
Also, remember that at a global balance sheet level, debt == savings. Debt (personal+state+corporate) has expanded because there are more and more people saving for their pensions, and the savings glut has pushed down the price of debt.
(and the "missing trillions" stashed in tax havens have to be lent out somewhere, too)
the crazy part is that it does not even need to be a complete halt in lending that cause it, just enough of a dip that expenses (debt repayments etc) outpace income (from the turnover of existing money plus the money coming in as newly issued loans).
And the whole debt equals savings thing is a fallacy that sadly the economics profession has convinced itself is true. The Bank of England released a document a few years back that showed how private lending effectively puts new money into circulation.
http://www.bankofengland.co.uk/publications/Documents/quarte...
Funny enough public debt is largely a non-issue, as long as said debt is denominated in the nation's own currency.
You seem to imply that money printing, and the resulting inflation, is painless and a non problem. I am not sure I agree with that. Lots of people will suffer in a high inflationary environment. Pensioners to start with.
If so is the case, something is badly wrong with the society that extends beyond the realm of economics.
Yes, the policies you describe do boost demand and that does cause inflation, but the supply side is not irrelevant. Less NIMBYism will help with housing costs, and maybe some reform could help with education supply. If demand is increasing (for example due to population growth and finance), ideally supply should also be able to increase.
Economist has presented a well written argument here: https://www.economist.com/news/briefing/21651220-most-wester...
Some of them are probably good, others not.
Home mortgages have mostly done what the politicians and public wanted in rural and suburban areas. Some price inflation happened as a side effect, but a lot of that extra cost went into bigger homes so people get something for it. Slightly distorting to the market, but nothing terrible.
In dense urban environments where supply is inelastic, price inflation was a lot worse yielded a lot less. This is probably one of the biggest cost of living problems.
I think the financialization of ordinary health services (not things like cancer or accidents) is terrible. I think it makes the whole industry a lot worse. Ultimately though, this is/was driven by consumer and voter demand not scheming villains.
Collectively, I think they might add up to different classes of problems.
We have a total disaster mid-way through. This has to change.
Why do you think this?
For those interested in the topic, I highly recommend Connie Bruick's Predators' Ball and Liar's Poker by Michael Lewis.
> Adam Smith, the father of modern capitalism
I hope we can stop conflating free markets for capitalism. Capitalism is to free markets what communism is to socialism. Adam Smith was very much focused on free markets, not capitalism. The author of the article, makes it clear later with
> Adam Smith, who believed that for markets to work, all players must have equal access to information, transparent prices and a shared moral framework
When people say capitalism they typically mean one or more of the following:
* Free markets
* Free trade
* Private ownership of the factors of production
* A form of economic organization characterized by tradable claims of ownership, & ownership separate from management.
* A form of economic organization where the primary driver of the firm is profit.
* A counterpoint to socialism.
* A counterpoint to centrally planned/managed economies.
By never being clear about what one means, and just saying 'capitalism' a skilled rhetorician can convince you one thing is good (or bad) and then lump others in as part and parcel.
As you point out profit seeking businesses do not like free markets.
Sure, some, but if every author accepted this as immutable, we can never progress.
The issue is that when you have two separate ideals, each with their own qualities, allowing them to become synonymous provides a defense for the lesser ideal in the name of the better.
So, it makes it easy for bankers and capitalists to defend their actions in the name of a free market!
Except one part of society (corporations) use this market to the hilt, while the rest of society largely abstains or is unable to participate in this market.
Fortunately you don't even have to read it from cover to cover to get the meat of it. Here https://www.youtube.com/watch?v=CZIINXhGDcs is a talk 80 mins long Graeber gave at Google.
Then once you've done that listen https://www.youtube.com/watch?v=8y_wz85ViLY to Robert Paul Wolff talk about the problem Ricardo, Smith, and Marx tackled. This one is a bit longer and it is tougher going but the pay-off is immense.
––
What this New York Times article and the recent Bloomberg https://www.bloomberg.com/news/articles/2017-09-21/why-wages... (“Why Wages Aren't Growing”) article that hit the front page here have in common is that they both refuse to recognise that Marx's critique of capital was correct in his day and it _remains_ correct.
The next part is important. We _must_ separate the critique from his proposed solution. To be very clear I can agree with Marx's critique but I do not have to agree that central collectivisation is the solution.
The very simple observation is this. For-profit capitalism over time will cause (a) workers to be exploited to the point where they can't actually take part in the society they're a part of (which hurts the capitalist too!) and (b) wealth gets concentrated inefficiently.
What the New York Times and Bloomberg (and many others) outright refuse to admit is that _Marx was right_.
Universal Basic Income. What is that but an alternate solution to collectivisation? Same applies to profit-sharing. It's the reason why charities are non-profits because we all recognise the alternative would be unseemly. The Tobin tax (taxing certain international financial transactions) is another solution. As are regressive tax regimes that hit the wealthiest hardest. Consider also alternate forms of incorporation like cooperatives. And so on. What all these have in common is that they try to address the flaw at the heart of capitalism. The sooner we stop calling people communists for putting forward sane solutions the better. If we don't address this there will be ruin and revolution and when that happens we'll have a messy rather graceful transition to a fairer society.
As to wage growth, it seems to be about 3% a year in the US at the moment and 13% in Hungary suggesting it depends on various factors rather than falling everywhere because capitalism.
To reiterate. My specific point about Marx is this. Given capital, given private property – his analysis/critique about for-profit capitalism is correct. And critique pertains to essentially free and fair markets, let alone markets distorted by too little or too much regulation or markets distorted by cartels, oligopolies, monopolies, cronyism, and so forth. Marx's point is that even when capitalism is operating in its _ideal_ state it is a system where wealth will inefficiently accrue to a minority (the rentier class) and where those who do not have a handle on the means of production will get progressively more exploited because -as your turn of phrase goes- profit. It's that simple.
You counterpoints are meaningless in the face of the very well documented and ever-widening pay gap between workers on the bottom rungs of the ladder and those towards the top.
As an aside there are things that bug me about Marx and his style of reasoning. Both the hundreds of pages so its hard to say you're for or against. Also nearly all his statments are slightly off eg. "The slave is sold once and for all; the proletarian must sell himself daily and hourly." By his definition is you don't have rental income you are "proletarian" and so selling yourself hourly or daily. Which doesn't seem quite right - ok you may get a job but it's not quite like that. It slightly amazes and saddens me that people took this stuff seriously and it went on to cause so many deaths and do this day messes with clear thinking analyses of poverty and the like.
> I'll give you that without intervention the rentiers can get richer.
This is a central claim of Marx! Those anti-Marx claim "it'll be okay because <some form of trickle-down economics>" or "you'll discourage entrepreneurs" or "taxes are theft!" or some other variant. What I'm trying to show is that you can agree with this part of Marx but reject his solution – state-run collectivisation or communism or whatever you want to call it. The trick is to not throw the baby out with the bath water.
"The slave is sold once and for all; the proletarian must sell himself daily and hourly."
Sell himself means sell his own toil, his own labo(u)r. If you are fortunate enough to have some form of rental income then your _capital_ is doing the work, ergo you are not part of the proletariat. I think that's pretty clear, no?
Marxism != Communism
Marxism != Anti-capitalist
If you want for-profit capitalism to succeed you have to be partly Marxist, that's the irony given the way these terms have been bent out of shape.
The fault-line of "property is theft!" from one side and "taxation is theft!" from the other to my mind illuminates the entire discussion. :)
brain-fart – that should read progressive not regressive of course. suppose that's clear enough from the context but for the record …
The concept of zero isn't even 5000 years old. Negative numbers were still being debated in the 1700s, though I think the first known use was in China's number rod system in 200 BCE. Conceptually, less than nothing is a funny thing and not really well grounded in the physical world.
It does make me curious. I'll have to look for the book. I find the history of mathematics to be fascinating, though debt may have originally been more culture and less math.
As for negative numbers, you can express "owes" without them so I doubt it was a problem. After all, you don't "owe" someone negative one thousand dollars—you just owe them positive one thousand dollars. You hand them a negative-one-thousand dollar bill, they're not gonna be happy. Being able to write negative balances or work formally with negative numbers isn't strictly necessary to work with debt.
In subsistence economies surplus is used primarily for fostering social relations and creating social obligations which one can call upon when times get though. And in subsistence economy sooner or later they will.
As more added value is created socioeconomic relations get more complicated and they become based on money.
Debt contracts appear to be the origin of writing in Sumeria and, likely, in the Americas (the third independent invention, China, appears to have a different origin).
We have remnants of what appear to be contract vessels: pots with statues of sheep and such in them presumed to memorialize a deal for some sheep or grain. If there was a dispute the pot could be broken open and the terms examined. Then they started putting a sheep on the outside so you knew what was in the pot, then a drawing of a sheep and then someone figured out you didn't need the pot.
I believe in the Americas writing began with record keeping such as with the quipu which might even have been discussed on HN recently. Not sure of its contractual implication though.
They are still trying to piece our history together and digging up what they can, sometimes literally. If you ever need something to do, many archeological digs accept volunteer labor. It's hard work but a lot of fun. They will train you and you start by moving lots of dirt that has already been sifted. Sometimes, you get a bucket and sometimes you get a wheelbarrow. Eventually, you can do the sifting and work your way up to doing some digging. Though, they probably will not want you doing much cleaning, mapping, or removal. If you're quiet and polite, you can usually observe when they do classification.
But, I digress...
Anyhow, there weren't many written languages in the pre-Columbian era in North America. Some, like my people, had pictographs and others had increased complexities.
You've given me something to research after dinner. Thanks!
e.g. I give you seed and you give me a portion of your crops for X growing seasons.
I'm going to read the book.
Smith's interests were philosophical, not economical. His biggest contribution was the observation that self interest is a force for net social gain, because every person pursuing their own interests leads to greater prosperity for all. Hence his famous quote:
"It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages."
Well, I mean, they are key to the well-established-as-false rational actor model that for a long-time ruled the social sciences (well, with the notable exception of psychology, which had it's own different challenges) as the one overarching model of human behavior.
It does provide a convenient framework for useful first-order approximations in some (especially mass aggregate) situations, with some supporting assumptions, still.
If you want examples, they are legion. Addicts, for example, clearly don't act in their own rational self interest. Whether it's substances (e.g., alcohol and other drugs) or experiences (like gambling and gaming), whole industries are built around exploiting people's inability to act in their self interest.
Another example is advertising. In economic theory, advertising and PR are about informing people, giving them new facts. But when you look at actual advertising, it's about giving them new feelings, about manipulating their decidedly non-rational behavior.
And there are plenty more. If you look the kinds of things consumer protection agencies get up to, you'll find plenty of examples.
[1] https://en.wikipedia.org/wiki/Behavioral_economics
[2] https://en.wikipedia.org/wiki/Bounded_rationality
[3] https://en.wikipedia.org/wiki/Cognitive_bias
[4] e.g., https://hbr.org/2009/07/the-end-of-rational-economics
An alcoholic who buys liquor is acting rationally according to his interest of getting drunk. Being an alcoholic may not be rational (to us). But I'd rather operate in an economic framework that doesn't judge the rationality of my interest, but that I have self interest and act rationally.
Your point about self-interest is similarly tautological. If people against their conscious choice do things they know are bad for them, which is what addicts do, then it seems absurd to me to define that as "self interest".
I'd say "rational" should instead mean what it commonly does: "in accordance with reason or logic". And "self interest" should mean something like "to the actor's long-term benefit".
In which case, people frequently act irrationally and against their self interest. Which is certainly what the field of behavioral economics has been demonstrating.
In the case of banks, you have execs acting in their personal self interest and not in the long-term interest of the bank. Their long and short-term interests were not in alignment. This could be addressed by compensating execs with shares that are locked up for a period.
To blame failure on irrationality is to not understand the motivations of the actors involved. Perhaps the risk of going out of business was mitigated by knowing they're "too big to fail". Perhaps it's not the banks that are irrational but the incentives given to them.
https://en.wikipedia.org/wiki/Self-interest
https://en.wikipedia.org/wiki/Ethical_egoism (your use)
https://en.wikipedia.org/wiki/Psychological_egoism (my use)
In the normative sense, any action that is "bad" is irrational. In the descriptive sense, there is no such thing as wrong self interest, therefore it can't be irrational. In that sense "rational self-interest" is tautological. Which is why in my original question I asked for "an example of someone not acting in their (voluntary) self interest".
We can also reason in principle that markets don't require that people have their long-term best interest in mind. The market for cigarettes and fast-food is operating just fine. Sure customers might suffer for it, but the market aspect worked just fine.
Given that you apparently understand that people mean different things here, your intervention in this conversation is especially irritating. Rather than just recognizing that jrs235 is using a different definition of self interest, the one that Smith was using, you post an faux-naive question, wasting at least his and my time, and likely that of others.
> Ethical egoism is not my position; I'm not making a moral claim
Hmm..
> Rather than just recognizing that jrs235 is using a different definition of self interest, the one that Smith was using
No, Smith was not using your (unprovided) definition. That's the whole point. Jrs235 slam dunk of a comment is a straw man. Read bmmayer1's comment.
> you post an faux-naive question, wasting at least his and my time
Yet nothing of value was lost.
What does this mean?
Would you explain this a bit more?
Free market is about leveling play field and equal access to marketplace for all actors big or small. Capitalism on the other hand is about maximizing control over markets and maximizing rent seeking.
Which is not saying that you're wrong, I'm just pointing out that probably each person/group has a different view on what "Capitalism", "Socialism", "Communism", "Fascism" etc mean.
That can't be helped. There are people who regard anything more collectivist than a volunteer fire department as communism.
All you can do is define your terms and try to argue only with intellectually honest people.
This is typically called "crony capitalism" -- it's a "false calitalism". To the capitalist faithful, rent seeking and monopolies tend to result from impurities in the system (usually government intervention) and tend to iron themselves out without that intervention. A little starry-eyed for me, but worth understanding the viewpoint.
I would very much like to see such a creature.
I take your point, though -- that "No True Scotsmen" capitalism, like actual factual communism, is an ideal that has never been achieved, and that incentives will always render it imperfect. It does empirically seem a rather safer ideal to aim for, though.
"...which is a socioeconomic order structured upon the common ownership of the means of production and the absence of social classes, money[3][4] and the state"
Absence of social classes, money, and the state. That is the key of the definition.
I thought it was about workers owning the means of production.
Socialism since its inception was never about redistribution of capital gains, it was about the ownership of society's means of production by the working class, i.e those who survive mostly or entirely from the sale of their labour-power. This definition stretches back to even before Marx, as does Communism. Your definition of "Socialism" is what it is thought of in the US, i.e Socialism is where the government spends money on social programs which it acquires via heavy taxation. This, as many point out, is actually social democracy, a form of economic management practiced most notably in Scandinavian countries.
So if what I have said is true, you may ask: What is the purpose of the word "Communism"? The truth is that 19th century authors used the term "Socialism" and "Communism" interchangably; this can be seen in Marx and Engels, Bakunin and Oscar Wilde's works. Although they were separated into higher and lower stages, the practice of calling the lower stage as "Socialism" is an invention of Vladimir Lenin who sought to describe his country as "state Socialist" in an effort to convince people of the idea that the means of production were communally owned by the working class.
Communism is further not about party control; the idea of the vanguard party again originates from Lenin; but here we must make a distinction - Lenin did not seek to modify what his theoretical predecessors meant by "Communism", he sought to create a model of praxis, that is, to ask and answer the question of: How is Communism achieved? Lenin's own idea to this was the usage of the vanguard party, which is a group of highly educated Communist intellectuals which guides the masses of the working class toward revolution and Communism.
You are conflating Communism with praxis (thus making a category error) and further conflating that specific Leninist praxis with Communism in general. The evidence that this is a conflation rests in two facts: there exist and have existed through history democratic Socialists who not only used the terms "Socialism" and "Communism" interchangably as I have already mentioned but who sought to establish Communism not via representation of the working class themselves but via the normal methods of parliamentary democracy. An example of this praxis in use is various Socialist parties which compete in local and national elections in Europe and elsewhere. Further, there exist today several varieties of Communism, within academia the meaning of Communism can be stretched much father than you may have anticipated; Badiou writes, "where there is a State, there is Communism to oppose it". This is known as the Communist hypothesis.
On to the definiton of capitalism, the main factor is the private ownership of social means of production. By this I mean that the majority apparatus used to produce goods which society exchanges and uses are owned by individuals who seek to make a profit. This is echod by Smith, Ricardo, Marx and Keynes. Other factors which contribute to the definition include the predominant usage of wage labour and the goal of capital accumulation.
Marx's biggest failing was that he did not consider a third possibility: fascism. Such a populist movement was inconceivable to Marx, the epitome of an enlightenment thinker.
What is fascism? Look at the bottom of https://en.wikipedia.org/wiki/Definitions_of_fascism wrt Orwell's comments, and "Fascist as insult".
I remarked elsewhere that the art of dialectic was at some point lost; in Plato's dialogues the method was used to free the other person's soul from contradictions by advancing questioning of their assumptions and models. On mass platforms this cannot arise, as one's reputability (which should be irrelevant) comes into question via the usage of downvotes, and further the downvotes do not advance the dialectic, they aim to put a halt to it. It were as if there were, in the time of Socrates, a man sitting at the table during a diologue who did not engage but merely remarked "That's wrong!" or "I disapprove!".
Socialism was born from the belief that democratic forms of government aren't possible so long as there is wealth inequality, as the rich will simply hijack the government to serve their interests. Socialism, then, is a large bucket of political beliefs all concerned with different methods by which to keep a vibrant economy, while ensuring that all people are relatively equal, or at least equal enough monetarily that the government can be truly democratic, for some definition of democracy.
Communism was born of the belief that the previous type of society was not possible to achieve without an organized group taking the reigns and instituting such a society. But of course, people rarely step down from power once achieving it, so instead you usually wound up with small groups of people dictatorially running countries and doing as they pleased, in the name of 'socialism.'
Free market ideology is born of the belief that decentralized economic planning is a way of bringing enlightenment thinking to economic matters, and, more simply put, that thousands or millions of people making small economic decisions will ultimately be more efficient, fair, and rewarding for society as a whole than small groups of people attempting to make such decisions for everyone on their behalf, from far away (literally, or metaphorically).
In this analogy, the author is implying that capitalism is similar to free markets, as communists are to socialism. A small group of people, who acting in the name of the previous ideology, ultimately come to concentrate power among themselves at the expense of everyone else. These people paying lip service to the original ideology they were supposed to be a part of, while actively acting against it and ensuring it does not exist for the wider population.
You probably don't think we should look to e.g. Portugal to see alternatives to the drug war, either. It's a funny sort of exceptionalism, to imagine that we can only learn from similar-sized nations. Would that be Brazil and Indonesia?
The secret unacknowledged religious dogma you might not even know you've swallowed (although golly are Goldman glad you did!) is the proposition that banks are difficult to replace. This notion is preposterous on its face (which is why no one ever says it out loud) because of course anyone who owns capital is quite capable of purchasing financial instruments with that capital. If they weren't, they wouldn't own it in the first place. In the absence of "bailouts", there might have been some temporary confusion as legitimate profitable uses of capital switched from the old banks to the new (and presumably as the new bankers upgraded their executive suites to the level of opulence required in their new positions), but the history of recessions in 19thC USA makes clear that when we just let weak banks fail, the economy quickly recovers.
19th C banks are wholly different creatures to what we have today - we weren't even on fiat currency in the 19th Century, much less using banks as extension of monetary policy. The entire point of defending banks is that there is an immense amount of built up regulations that would not transfer over to the 'new banking system'. And while it's debatably whether or not existing regulations are good, the current regulatory environment makes it unlikely that any sort of similar consumer protection would be re-built in this day and age - just look at the modern ICO, which is wholly built on smoke and mirrors.
Iceland and Portugal should be lessons for entities or similar size, like individual states of cities in the US.
The examples we have of countries letting their banks fail recovered¹. The onus is on anybody disagreeing to show how the US differences are relevant. Just pointing at them and screaming does not make it.
1 - AFAIK, all of them. What is interesting because it includes Brazil at the late 90's (the one single time Brazil grew in recent history).
Past experience gives us lessons for similar cases. The onus is on anybody using a model to ensure the use case is similar to the training data.
The US and Iceland are nations but it’s unreasonable to get hung up on that similarity of category. The nation is not a label for grouping economies that are comparable.
I don’t like bailouts either, for the record. My gripe is only with the scale question.
This whole size thing is a silly exercise in magical thinking anyway. Money is divisible, across all relevant scales. Pick any random nation, and its economy is larger than USA's was, some number of years ago. Would you say that we weren't exceptional back then, but we are now? When did that transition occur? What happens if some other nation's economy grows to our economy's current size, sometime in future? Will we no longer be exceptional?
But if Iceland remains its current size, neither superpower should treat it as comparable for scenario analysis.
I get a sense this is a political question for you; it’s not for me. It’s just an example.
Amazon is a company. I have a company of my own. Say my servers went down, and a few days later things were alright. Would it be Amazon Exceptionalism if they refused to learn from my experience?
Bailing them out lead to all kind of problems too. 8 years later the economy hasn't quite recovered, and in the meantime the lack of trust caused by all this gave us Trump, Brexit, etc. I guess we can't really know what would have happened if these banks had failed, but the alternative is definitely not great.
A "premier" position based on bullshit ain't so premier.
The people in 2008 just timed the market poorly. This time around, we’ll see all the tell-tale signs of a housing crash and get out right before it does so, all cash. Then, when all the stocks (Because, of course, banks will lose out on the highly leveraged positions of our non-fortuitous peers) have tanked, we’ll simply buy them at rock bottom prices, riding a wave of financial security into the nursing home.
During the asian financial crisis the IMF and WB were gung ho about free markets, austerity and enforcing failure without exception but as soon as it hit western economies the whole field of economics changed with words like 'too big to fail' and 'systemic risk' entering the economic vocabulary.
How does one explain oil being at $40 and $140 with supply and demand and free markets. There is a lot more going on that is often hidden behind jargon that obfuscates than informs.
One can argue that some suppliers act "irrationally" when they artificially restrict their output to drive up prices (OPEC), but this is what you would expect to see in that situation.
A loan to your your local mom-and-pop shop is a much riskier investment than a bond to a large corporation. DFA discourages risk-taking with the new capital requirement rules. Thus, community banks are fighting over a small pool of profitable loan opportunities and their numbers shrink. On the other side, small businesses have a harder time getting loans.
Regulatory compliance overhead from DFA hits community banks harder than big banks as well, so they're consolidating and leaving fewer true community banks.
None of this is has much to do with the actions of big banks. It's the natural consequence of DFA. If you don't like the status quo, you need to change DFA. Not necessarily to pre-2007 rules, but some small changes could provide a big boost to community banks.
To be frank I think that US banks might be influenced by foreign powers just like it happened for the last election.
I think that finance will damage sovereignty in the long run. It really looks like common citizens don't really have a say on how finance work in terms of politics.
The rules that Obama made, where hardly enough to prevent the biggest problems, of the system. But even those are abolished by the new president, since they might limit the possible profits, rich people can make.
And so we live on in the land of unlimited profits for the 0,1% and the unlimited losses for society.
Building financial services in a way that doesn't corrupt is as hard / harder than building a serach engine / browser / car sharing company that will last for 1000s of years rather than decards
It explains the history of banking, why banks are useful and also why many banks today are dysfunctional and harmful.
They will not be our masters much longer now that they will lose their monopoly on trust.
If you work for money, then by extension you work for the bank, because that is where money is apparated.
The bank is the one who decides how much money is to be created, and who gets it first.
"Mainstreet vs Wallstreet". <expletive deleted>