Free Markets in Good Times, Big Government in Bad Times
Larry Elliott in the Guardian writes that
Every parent with a stroppy teenager knows the feeling. After relentless pressure, mum or dad gives in to demands that they drop the oppressive rules that govern the home and, with reluctance, allow their progeny to do their own thing. The last words the teenager hears as they slam the door and head off for a life of freedom is: "Be it on your own head. Don't come running to me when it ends in tears."
But, inevitably, when it does end in tears, mum or dad can't really bring themselves to make good on their threat. The blubbing teenager is welcomed back into the fold with a warm embrace and insists it won't happen again.
That, in brief, is the relationship between the world's commercial banks and those regulating them. Having behaved like wild ones, the banks now want their parents - the Bank of England, the Federal Reserve, the European Central Bank in the first instance, but ultimately the taxpayer - to bail them out. They want cheap money, they want anonymity to make sure their previous stupidity is not revealed, and they want lower interest rates so that the public will be encouraged to borrow again.
He also cites Mises and Hayek.
Comments (15)
Not a bad attempt for a reporter, but his analogies are all wet. When arguing by analogy, the details of the analogies are extremely important. Lew's analogies in his article are much better. Central banks are not parents; the're parasites!
If you want to use the forest fire analogy, then someone has to set the fire and it's the central banks. If you want to use the family analogy, then the parents (the central banks) must be portrayed as abusive and cruel with the teenagers trying to get away from their abuse.
This is a typical example of the media hallucinating about the all-wise, all-caring government watching over us like gods. It's nothing but Old Testament idolatry.
Published: March 20, 2008 4:58 PM
Fundamentalist, I couldn't disagree with you more. I've never heard a bank executive call for the abolition of the Fed or any other central bank. They want to be regulated, because life is always easier when you aren't held accountable. All they have to do when their business plans fail due to malinvestment is complain about the regulatory environment, as opposed to going bankrupt and being replaced by a sounder institution.
There's a symbiotic relationship between banks and the central bank, not a parasitic one. The parasitic relationship is between the monetary system and those who are forced to maintain it through taxes or inflation.
This is another case of businessmen advocating socialism to cover their asses, pardon the crude language but I do think that it's blatant and shameful.
Published: March 20, 2008 5:21 PM
Fundamentalist, I couldn't disagree with you more. I've never heard a bank executive call for the abolition of the Fed or any other central bank. They want to be regulated, because life is always easier when you aren't held accountable. All they have to do when their business plans fail due to malinvestment is complain about the regulatory environment, as opposed to going bankrupt and being replaced by a sounder institution.
There's a symbiotic relationship between banks and the central bank, not a parasitic one. The parasitic relationship is between the monetary system and those who are forced to maintain it through taxes or inflation.
This is another case of businessmen advocating socialism to cover their rear-ends.
Published: March 20, 2008 5:22 PM
Fundamentalist, I couldn't disagree with you more. I've never heard a bank executive call for the abolition of the Fed or any other central bank. They want to be regulated, because life is always easier when you aren't held accountable. All they have to do when their business plans fail due to malinvestment is complain about the regulatory environment, as opposed to going bankrupt and being replaced by a sounder institution.
There's a symbiotic relationship between banks and the central bank, not a parasitic one. The parasitic relationship is between the monetary system and those who are forced to maintain it through taxes or inflation.
This is another case of businessmen advocating socialism to cover their rear-ends.
Published: March 20, 2008 5:23 PM
Sorry about the repeats, still getting used the new platform, please do delete them.
Published: March 20, 2008 5:28 PM
The blog comments no that site are an interesting (and tragic) opposite to the comments on this site. Paraphrased in a liberty mode: "Steal my money to save them, I will benefit in the end." "It is ok for the Fed to create the crisis, because in the end the Fed will own the business after it defaults. Then I, Mr. Taxpayer, who owns the Fed, will own the business." "Theft is ok as long as it benefits me." "I don't want people and businesses to be responsible for their own actions. Regulate them because the politicians only have my best interest at heart."
This type of banter, both in blog and in actual speech, really makes me depressed. How can I/we make people see that regulation and statism is what got us here in the first place, and that the entire purpose of those actions was to defraud the average person?
Published: March 20, 2008 6:11 PM
It seems they lack any moral sensibilities whatsoever. What, then, must one say of them? That they deserve financial ruin? That they wallow in their ignorance like pigs in mud? Let the state run them into the ground I say. Nothing like a bit of natural selection...
Published: March 20, 2008 8:39 PM
Peter: "There's a symbiotic relationship between banks and the central bank, not a parasitic one."
I'm not so sure. The central banks initiate the problem by artificially lowering interest rates. What are banks supposed to do? Ignore the lower rates? Per Hayek's model of business ignorance and dependence upon interest rates and prices, banks do what they were created to do--follow pricing signals and make more loans at lower interest rates. Besides, I haven't read banks begging for bailouts as much as the financial press and politicians.
Published: March 20, 2008 10:39 PM
Fundamentalist:
The real symbiotic relationship is between the entire banking establishment and the government.
The central bank prints the money to fund the government's agenda, and the government allows the banking establishment to make fat profits from lending money that's created out of thin air; and with little risk. There is no financial or political incentive to do away with the Central Bank since it suits the elite's purpose. Everyone else suffers, of course.
Published: March 20, 2008 11:03 PM
fundamentalist says:
"Besides, I haven't read banks begging for bailouts as much as the financial press and politicians."
true, but only because the banks do their lobbying in private.
the banks' debtors squeal like cut pigs, and so politicians solve everything by slugging the innocent taxpayer. i think peter is right - this is a very comfortable arrangement for both the banking cartel and the monetary authority.
the banks as just lucky they've got bernanke and not volker in the driver's seat, otherwise some serious blood might have actually flowed.
Published: March 20, 2008 11:46 PM
I understand that the banks' profit-maximization calculations do use interest rates which are not accurate representations of economic reality. I can't blame them for that, but they are ideologically attached to this situation and are proponents of it. Newson is correct in stating that we don't hear about the banks' lobbying, and this goes back to the media reporting "public issues" as opposed to "private business" because it's easier to do (WSJ succeeds in going against this to a certain extent).
If the banks accepted regulatory/inflationary policy out of indifference I wouldn't be so quick to condemn them, but they are active supporters of it.
Published: March 21, 2008 1:09 AM
in return for unquestioning allegiance to the fed, the banks get a limited-competition environment via high regulatory barriers to entry, an exemption from the usual obligation to mark balance sheet items to market, and bankruptcy provisions that are, well, discretionary.
since the government explicitly guarantees deposits to a certain amount (and probably all deposits, in a politically- real sense) they never get tarred and feathered by ruined depositors, as did bankers of yore when their banks shut.
a pretty good trade-off. i do feel sorry for them having to comply with the "know-your-customer" laws brought in post 9/11. but they haven't had any problems sending the compliance costs on down to the customer, the ultimate sufferer.
Published: March 21, 2008 9:29 AM
Ideologically? I'd say more out of a sense of pure self-interest.
Published: March 21, 2008 10:29 AM
That bastard Hamilton started all this crap. Banker's like all other mercantilists then as now, seek govt's privilege to benefit themselves the coercive political way at the expense of the many, verses the non-coercive economic way where no one gets a govt privilege not equally shared by ALL citizens, which could rightly be called the general welfare, it's proper definition.
I agree the author's analogy is a bad one. Banks w/special govt privilege to inflate/deflate and charge interest for what used to be the people's money when it needn't have been the case, which it wasn't for 100yrs theretofore, and done to the people based on "emergencies" the banks conspired to create, is the grandest fraud in the WHOLE HISTORY of mankind.
Bank's are the street crack (CC's) dealers we want to keep our kids from getting hurt by.
I pose this question:
What has been the opportunity costs to generations of Americans, of paying unequal rates on taxes (while elites escape them almost wholey), and paying interest & principle of $2.20 for each fiat dollar created from thin air? All of which has acted to grow govt and shrink the society that is their golden goose?
EG, had ALL those monies stayed in the hands that earned them, what would that otherwise accumulated and compounded intergenerational wealth have amounted to by now?
I dare say we'd have been a nation of millionaires by now. And considering we would not have had a century of bloody criminal wars w/o the unconstitutional fiat mechanism to finance them, add those expenses the people would have otherwise kept, or rather that each newborn wouldn't be being born today with a tax bill to go w/their birth certificate.
Ron Paul in 2008! - my write in vote - abolish the Fed, ergo interest, ergo taxes, ergo the IRS - then cut the rest of govt off at the thighs, and their thieving heads while we're at it - traitors all to the most magnificent gift men gave man in all history.
In fact the polulation should demand the repayment w/interest from all the families who's foundations and trusts escaped taxes, and instead has funded the phonomenal growth of the statism that enriches only them.
Call it - Foundation's Reparations!!! Giving back to the free society they've spent 100+yrs stealing from, murdering and plotting against for profit!
Published: March 21, 2008 11:09 AM
"I'm not so sure. The central banks initiate the problem by artificially lowering interest rates. What are banks supposed to do? Ignore the lower rates? Per Hayek's model of business ignorance and dependence upon interest rates and prices, banks do what they were created to do--follow pricing signals and make more loans at lower interest rates. Besides, I haven't read banks begging for bailouts as much as the financial press and politicians. "
Yes and No. The banking system is a cartel, not a free market mechanism that sprank up spontaneously through unfettered supply and demand. The whole system is set up to automatically bail out the banks - they don't have to ask for it, it's implicit in the day to day functioning of the Fed.
What we have seen over the past few months is a situation where all of this comes to a head and the true nature of the system is made more public for everybody to see - if you care to see it or understand it. If you examine everything the Fed has done since last summer, every action they have taken have been aimed at keeping the banks solvent and profitable. Economic growth and inflation are secondary.
In a lot of ways the banks have no choice but to lend all of the funds available to them - created by the central bank. But that is because the system was designed that way and they are part of the system. Banks have to lend to make money, interest on loans is their primary method of making money. When somebody pays back a loan the bank doesn't make a profit, an asset and a liability simply disappear from their balance sheet with no effect on their profits.
Except, that asset no longer pays interest. So the bank has every motivation to loan all funds available and none whatsoever from holding reserves. In fact reserves cost money because inflation erodes their value. And if they overextend themselves they can be assured that all the other banks in the system have done the same. Then the inevitable crisis can be blamed on a "systemic problem" which the Fed was created to fix. By "fix" I mean transfer the costs of the bailout to the taxpayer.
The Fed, and all central banks, ultimately exist to allow the member banks to inflate uniformly - without competing with each other on the relative conservatism of their lending practices. When it periodically gets out of hand the "lender of last resort" bails out the entire system. If this sounds like cartel there is a reason for that.
Since 1913 there have literally been millions and millions of business failures in all industries across all time periods. During the same time period only a couple thousand banks have failed - even including the great depression. Why is that? Are bankers on average better businessmen than all the others? Answer that question for yourself.
You will notice that I make no mention of the supposed jobs of the Fed: restraint of inflation and maintaining full employment. The Fed is periodically held nominally accountable for these things (actuall only one of them, no politician has ever threatended the existence of the Fed for letting inflation get too high) by the politicians, but so few of them understand how this really works that they are oblivious. In times of crisis in the banking system the fed abandons both in order to maintain the solvency and profits of the banking system. That's it's job.
Published: March 23, 2008 1:22 PM