From today's FT:
Sir, Of the manifold causes of the macro-economic collapse, having Europe's finance ministers pander to the pitchfork populism that currently revolves around the banking bonus system risks detracting from a broader policy debate regarding the political and regulatory mistakes which contributed to the crisis (Letters, September 4).
But perhaps that's the point: governments and their regulatory agencies practised policies that explicitly facilitated the speculative excesses of the housing boom. The ensuant, and ultimately unsustainable, pace of wealth creation saw bankers, alongside a much broader constituency of beneficiaries, act perfectly rationally as agents of a capitalist economy in maximising their utility function with respect to this wealth. That included borrowers of subprime debt, real-estate contractors, buy-to-let speculators, and the myriad of yield-hungry investors in its asset-backed markets.
Governments consequently reaped the political as well as the taxable benefits of spectacularly leveraged house price appreciation. That these governments largely squandered the opportunity for contra-cyclical deficit management reflects a propensity for the same preoccupation with short termism endemic in the high-octane capitalism over which they presided.
It remains the responsibility of government to regulate the excesses of its risk-bearing economy. Having systematically failed to do so, a substantive G20 policy rethink that goes beyond the trivialities of bankers' bonuses is the least that taxpayers deserve.
R Wise, New York.
What have we wrought in the UK?
10 hours ago
9 comments:
A pretty succint summary.
> It remains the responsibility of government to regulate the excesses of its risk-bearing economy.
I would only disagree with this bit. I would say it's the responsibility of the state to regulate the amount of credit in its currency monopoly, which works out broadly the same.
/pedant.
Governments are individuals yoked to each other. A career politician is no economist - just look at Brown. A Minister is more usually a lawyer.
Therefore, fiscal policy is usually on the recommendation of supposedly eco-literate men and women and those men and women are in the financial system, more particularly in the CBs.
The Fed knew what was going down because I've read the FOMC reports and they were planning, in 2006, on the basis of something going down in 2010.
Therefore they do look at the economy occasionally. Therefore they could see the sub-prime problems looming.
Therefore they are effing criminals. Therefore they should be taken out and lynched, as a mob tried to do to Biddle in Jackson's day.
In those days, they knew the real enemy. The difference today is we have no Jackson who'll stick to his guns.
AC1, if they kept property prices down, that'd be two-thirds of the battle, the rest is down to sensible banking supervision.
JH, "fiscal policy" is dictated by "what gets me elected". And as Labour have shown, giving people the illusion of wealth via ever-rising house prices is a good way of doing it.
The other people mentioned in the letter, bankers, speculators etc were the only ones who actually became wealthier (while adding nothing to the economy in the process).
I don't really care about house prices...
I care about house affordability i.e. the ratio between wages and house costs.
AC1, sure, it's the ratio of prices to net incomes that matters.
Of course under a single tax LVT, Net income and gross income would be identical.
AC1, indeedy, and the cost of buying a house would be no higher with or without the LVT.
Bankers bonuses are a ruse. Political rhetoric scores points with a disgruntled public, but ignores the more important issue of regulating excessive risk.
See "Bank Bonuses and Climate Change"
http://thegreenmarket.blogspot.com/2009/09/politics-of-curbing-bankers-bonuses-in.html
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