Monday, 10 February 2014

Bank reform shambles.

Here is a selection of literature spelling out the chaotic nature of recent attempts to reform banks.
1. Article by Gordon Brown (Britain’s former prime minister) in the New York Times (Dec 2013) entitled “Stumbling towards the next crash”. Here’s an extract:
“….most of the problems that caused the 2008 crisis — excessive borrowing, shadow banking and reckless lending — have not gone away. Too-big-to-fail banks have not shrunk; they’ve grown bigger. Huge bonuses that encourage reckless risk-taking by bankers remain the norm. Meanwhile, shadow banking — investment and lending services by financial institutions that act like banks, but with less supervision — has expanded in value to $71 trillion, from $59 trillion in 2008.”
2. Article by Robert Schiller (recent economics Nobel Laureate) entitled “The Financial Fire Next Time.” Published by Project Syndicate.
3. Article in the Financial Times (mid Jan. 2014) entitled “Nothing can dent the divine right of bankers”. If you Google that title, obviously you’ll find the actual FT article, but it’s behind a pay-wall. However it’s been re-produced on a Spanish web site: “Hipona”.
4. Article by Alistair Darling (Britain’s former finance minister) entitled “A crisis needs a firewall not a ringfence” published by the Financial Times. Darling’s article claims that the ring fence proposed by the Vickers commission would not have prevented the crisis. (The Vickers commission was the committee in Britain which has produced a new set of rules to govern banks which will supposedly make the banking system safer.)
5. Book by Lawrence Kotlikoff (economics prof. in Boston) which is much more scathing about Vickers than Alistair Darling. The book is entitled “The Economic Consequences of the Vickers Commission”.  The book is free online.
6. New York Times article by Simon Johnson, former chief economist at the IMF, entitled “The Rich Country Trap”. It’s about the corrupt politician / banker nexus and he predicts it will continue.
7. Article by Martin Wolf entitled “Why bankers are intellectually naked”. This argues that the capital requirements envisaged by Vickers are nowhere near enough (a point which Sir John Vickers himself has now conceded).
8. Article by John Cochrane (University of Chicago professor) entitled “Stopping Bank Crises Before They Start” published by the Hoover Institution. Opening sentence: “In recent months the realization has sunk in across the country that the 2010 Dodd-Frank financial-reform legislation is a colossal mess.”

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