The impressive talk we heard from politicians and regulators
a few years ago about how they were going to change bank regulations has
essentially come to nothing.
Banks have hoodwinked, suckered and generally fooled
politicians and regulators. Two recent articles make that point. One was
yesterday in the Financial Times. The article is re-produced on this Spanish
site. The other is by Robert Schiller
(recent economics Nobel Laureate).
As Schiller correctly points out, politicians just don’t have
the brain or knowledge to deal with this topic.
If there is one basic point that politicians and regulators
don’t get, it’s the following (very simple) point. Any deflationary effect coming
from imposing higher capital requirements on banks can be countered by standard
stimulatory measures (monetary or fiscal).
However banks have an easy answer for that: they get out
their megaphones, turn the megaphones up full blast, stick the megaphones in politicians’
ears and repeat the message “bank lending mustn’t be allowed to decline, else
economic growth will take a hit”.
And a several savvy politicians have pointed out (including
Hitler and Goebbles) you don’t persuade many people by using reason: what’s far
more effective is constant repetition.
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