Nigel Lawson, the UK’s former finance
minister has an article
which starts by praising the present government’s “fiscal consolidation”. For an explanation as to why fiscal
consolidation is a nonsensical idea, see here.
He then argues that the recovery
would have been helped by splitting RBS into a good bank and bad bank. Well
obviously private banks, RBS, in particular would have lent more if the state
had taken over their dodgy loans. But that’s a subsidy, isn't it? And what’s
Nigel Lawson, staunch free marketer, doing advocating a subsidy?
Moreover, there are (apparently
unbeknown to Nigel Lawson) quite a few banks in the UK other than RBS. Having
RBS lend more wouldn’t have made a HUGE difference to the pace of recovery: if
there a viable lending opportunities out there, other banks would be jumping at
the opportunity to lend, wouldn’t they?
And finally, since banks are
demonstrably incompetent, if not actually criminal, why implement stimulus via
banks at all? I.e. why not just increase public spending or feed money into
consumers’ pockets (depending on your political preferences). The latter two
sources of spending will place orders, and there’s nothing bank managers like
to see more than full order books: that induces them to lend (where lending is
an appropriate way of helping meet orders, which it isn't necessarily).
Islamic finance.
There is a letter
from Andreas Jobst, Chief Economist
of the Bermuda Monetary Authority pointing out that Islamic Finance reduces
leverage and would have helped during the crisis. That is, under Islamic
finance, lenders have to take an equity stake in the entity they lend to. In
effect, lenders become shareholders or quasi-shareholders.
While not going along with every aspect
of Islamic finance, others have come to the conclusion that the above
arrangement greatly improves bank stability and are arguing for making banks
abide by that sort of arrangement: e.g. Laurance Kotlikoff
, Richard Werner
and Positive Money.
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