I just dont get the problem about banks.
I have read around extensively and every commentator and article I have been able to find takes for granted that banks must be bailed out and that any failure to do so will have catastrophic consequences: not one of them says why, with the honourable exception of an article from the Cato Journal: a neoliberal body, so far as I can tell, which does not agree with this otherwise almost complete consensus.
http://object.cato.org/sites/cato.org/file.../5/cj16n1-2.pdfIt looks to me as if their focus is on the malign influence of regulation, which if they are neoliberals is what you might expect: but at least they offer some explanation as to why banks are assumed to be so special. But even this does not make much sense to me.
So far as I can tell the idea is that banks are more interconnected than other businesses and this means that failure of one is more likely to spread through the industry than would be true for, say, a manufacturer. That appears to rest on the fact that they are each others creditors and debtors and also to some extent to the fact that there is no real substance to much of what they d,o and so no way of telling a solvent from an insolvent bank. Thus their security is really a matter for the confidence fairy and if that fairy turns away there is no floor under the bank which prevent its complete failure. That would seem to be supported by what Mr Dimon said about the JP Morgan debacle at the senate committee yesterday: they adopted a new risk assessment model because Basle 3 demanded stricter controls: and it turned out less strict and led to the losses. "Risk Assessment" is a dirty word to me, closely related to "epidemiology". This is not because there is anything inherently wrong with either concept, used appropriately: it is because it is my own experience that they often mean "crystal ball gazing", and are as much use as interpreting the flight of birds, if you want to predict the future. And that is what they are used to do, very often. This utter woo is at the heart of the neoliberal project and it has infected every part of our public life. I seldom hear it challenged.
But the real question is why it matters. Banking is in one sense an industry. It exists to make money. In the neoliberal conception a company or an industry which cannot achieve that must fail: intervention is always wrong and it always makes things worse, no matter how well intentioned. Except banks.
But what actually happens when a bank fails? Some folk lose money, certainly, just as they do when any company fails. Some folk lose their jobs; again, no difference there. Because of the interconnectedness there is said to be contagion and so perhaps the whole industry fails: well that is never good and the consequences can be very severe, as we have seen when almost the whole of the mining and the ship building industries were allowed to fail in this country on neoliberal grounds. I would not wish that on any community dependent on a single industry. But banking is not actually much like that, most places. It is like that in the city of London, and so if the industry were to fail we might see the square mile turn into a jobless desert: it was good enough for Clydebank, when the shipyards closed: it was good enough for Motherwell when the steel works shut down: it was good enough for whole swathes of Wales when the mines closed. Why is it not good enough for the City of London? We are not told and I really want to know
Edited by FionaK - 29/1/2014, 15:25
