Friday, 17 January 2014
Banks have run rings round politicians and regulators.
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.