Tuesday, 24 February 2015
Alexander Apostolides’s amazingly clever article on banking.
This article by AA seems to have impressed sundry people in the Twittersphere, e.g. see here and here, but not me (e.g. see my critical comment after the article). Anyway, with a view to resolving this, I’ll run through the article in detail.
The article is 650 words in length, and the first 450 simply make the point (scarcely believable this) that the bubonic plague in Europe and the Turkish invasion of Cyprus in 1974 were traumatic events for Europe and Cyprus respectively, and that such events can be turning points for countries concerned. Well I bet you didn’t know that…:-) I could add that the Norman invasion of Britain in 1066 was a similar turning point, and I could point to other turning points, but I don’t want to bore you to death.
Now in view of the above 650 / 450 numbers, astute readers will notice that that only leaves 200 words in which to say something about banking. Given that banking is a complicated subject, the chance of anything original being said in 200 words is slim. But let’s give AA the benefit of the doubt and examine the 200 words.
The paragraph after the above stuff on the bubonic plague says “The bail-in of 2013 is another such juncture. In March 2013, the unprecedented step of punishing depositors for the mistakes of bankers and their regulators will permanently alter the economic infrastructure of the island.”
Well OK. But deploring the bail in of ordinary depositors is easy. Wooley minded lefties will approve of that. But unfortunately that leaves unanswered the question as to exactly WHO SHOULD be bailed in: i.e. who should pay for bank failures? AA doesn’t tell us.
You could argue that the latter sentence of his suggests that “bankers and their regulators” should foot the bill for bank failures. Unfortunately “bankers and regulators” just don’t have access to the ENORMOUS SUMS needed to bail out large banks. So AA’s weeping and wailing on behalf of depositors isn't much use.
Moreover (and I very much doubt AA knows this) one proposed solution to the question as to how to deal with our obviously dysfunctional banking system ACTUALLY INVOLVES bailing in a particular type of depositor. That proposal is part and parcel of full reserve banking. But that’s far too complex a point to deal with here.
Anyway, then comes the final section of AA’s article which is entitled “Vested resistance to change” and consists of 140 words. AA basically makes the point that vested interests stand in the way of bank reform. Well I never! Is there anyone who hasn’t worked that out?
And AA’s final paragraph reads “Like the peasants in the day of the Black Death, society at large should not tolerate efforts of interest groups to stop the root-and-branch reform of the institutions that led Cyprus to this crisis.” Well everyone will drink to that: just another statement of the obvious.
And the real irony there is that several people, who claim to be left of centre and “radical” (to use the fashionable word) favor patching up the existing banking system rather than implementing root and branch reforms. But as Bill Mitchell has pointed out ad nausiam, the political left worldwide is incapable to doing anything much more than aping the economic illiteracy of the political right. I.e. lefties are far from innocent when it comes to backing vested interests.
But as regards banking, the CRUCIAL question, the $64k question is: exactly what should “reforms” consist of? Dodd-Frank & Co in the US have got bogged down in horrendous complexity in trying to answer that question. AA doesn’t tell us or even make any suggestions (apart from his dislike of depositors being bailed in).
Alexander Apostolides’s article doesn’t amount to much.