Economic policy — a political matter

10 Sep, 2018 at 15:33 | Posted in Economics | 3 Comments

toozeWhat kind of financial system do we want? What function should it have? What kind of financial activity do we want to permit or even encourage? These are essential questions for the shaping of economic and social policy at a national and global level. If we leave these questions up to the private sector, we expose ourselves to enormous risks. On the basis of our experience of 2008, we know how to master a massive heart attack in the banking system. But we also know how high the costs of such an intervention are.

The chance for structural reform was missed in 2008 … What we must aim to do is tighten regulations, further raise capital requirements and bolster liquidity buffers to minimize the risk of a bank run. Furthermore, we must extend regulation to non-banks, such as the major asset managers. These are technical matters, but as the fate of Dodd-Frank shows, they cannot be separated from politics … The endless bickering over technicalities is the opposite of what we need: namely a real and powerful banking supervision that does not shy away from fundamental questions and public debate.

Unfortunately, no one with political authority on either side of the Atlantic seems prepared to pose these questions, let alone to take action. After 2008, we know what that means. When things get serious, we are all on the hook.

Adam Tooze

3 Comments

  1. “What we must aim to do is tighten regulations, further raise capital requirements and bolster liquidity buffers to minimize the risk of a bank run. Furthermore, we must extend regulation to non-banks, such as the major asset managers.”
    .
    Bankers will stay ahead of regulators. Recently I looked up the Lehman Brothers 2007 Annual Report ( https://www.zonebourse.com/NB-PRIV-EQPARTN-56192/pdf/87896/NB%20PRIV%20EQ%20PARTN_Rapport-annuel.pdf). Regulators did not catch or probably look for repo transactions counted as sales. Now they might, but what new tricks are current firms using that regulators haven’t thought of?
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    Anyway, we know how to fix panics: print money. We should print money for individuals to help us through our individual existential crises.

    Comment by Robert Mitchell— 16 Sep, 2018 #

  2. I clicked thru to read the short essay at zeit, but not the book. Tooze’s narrative style in the essay makes me uncomfortable: he’s failing to make some basic distinctions in categorizing policy approaches and the varying desiderata of the advocates of those policy approaches.
    .
    Volatility in financial systems — and even financial crises — can be good for some very powerful people, precisely because they have the power to command the resources of the state in — to borrow from Professor Farmer in an earlier post — restore the value of their private assets. The “bickering over technicalities” is simply an instance of how it comes about that those who make the rules get the gold, to coin a phrase.
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    One critically important reason to advocate for restructuring as an approach to reform is to remove from corrupting power those who would use that power to inflict harm on the larger society.
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    To wring one’s hands and call out plaintively for a powerful agency of financial regulation without an adequate theory of either politics or finance seems like mere virtue signalling to me and rather promiscuous virtue signalling at that, as it appears Tooze wants to seem virtuous to a wide audience including many who rather like the predatory potential of finance.

    Comment by Bruce Wilder— 11 Sep, 2018 #

  3. Good book. Great read.

    Comment by Dwayne Woods— 11 Sep, 2018 #


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