Wednesday, 23 July 2014
Goldman Sachs doesn’t like Dodd-Frank – shock.
The “Goldman Sachs Global Markets Institute” says Dodd-Frank has curbed growth, according to today’s Financial Times. Oooh gosh, does it? Well for Gawd’s sake: what else do you expect them to say?
But to be fair, let’s look at their arguments. According to the Financial Times, GSGMI’s main argument is that small businesses mortgagors have been hit by increased charges made by banks as a result of Dodd-Frank bank regulations. Well I’m sure they have. But that doesn’t prove any effect on growth.
Of course the banksters’ poodles who infest Congress and the UK’s House of Commons fall hook line and sinker for the argument that less lending means less growth. And one of the leading, most gullible and vociferous poodles in Britain is Vince Cable, the so called “business secretary” (who clearly knows nothing about business).
The first monster flaw in the idea that higher interest rates or bank charges mean less growth is that mortgagors in Britain at the end of the 1980s were paying THREE TIMES THE RATE OF INTEREST that they’ve been paying over the last two or three years. Yet (and this will be incomprehensible to poodles), economic growth in the 1980s was far better than it’s been over the last five years or so during which we’ve “enjoyed” record low interest rates. And even with the substantial drop in unemployment in the UK and US recently, PRODUCTIVITY improvements have been FEEBLE.
Next, the fact that the price of something rises (whether its apples, interest on borrowed money, hamburgers, etc etc) tells you NOTHING WHATEVER about possible effects on economic growth. In particular, if the price of the relevant commodity was previously SUBSIDISED, and the price rise stems from a removal of that subsidy, then it’s reasonable to expect IMPROVED GROWTH as a result: it’s widely accepted in economics that subsidies distort the market and REDUCE GROWTH (unless there are very good social reasons for the subsidy).
And half the point of Dodd-Frank rules and similar rules being implemented around the world is to REMOVE the various subsidies enjoyed by banks.
The bloated bank industry.
Next, the size of the UK’s banking industry relative to GDP has expanded TEN FOLD over the last fourty years. I.e. there’s been a HUGE INCREASE in loans / debts over that period.
So according to the Goldman Sachs hogwash / deliberate lie theory of loans and growth, economic growth should be far higher than forty years ago. But it’s not!!!!!!!!!!!!!!!!!!!!!!
Incidentally, I AM NOT SUGGESTING that Dodd-Frank is a brilliant bit of legislation. I agree with Richard Fisher, head of the Dallas Fed who said, “We contend that Dodd-Frank has not done enough to corral “too big to fail banks” and that, on balance the act has made things worse, not better”.
Conclusion: if you believe anything coming from Goldman Sachs or any other bankster you have to be phenomenally stupid.