We need to pamper our bankers, not punish them. Gratifying the urge to punish the bankers will only mean hurting ourselves
Bankers have been bad boys, no doubt. They have been greedy and reckless, driving their businesses into the dirt even while amassing huge bonuses and payoffs. And they have not merely bankrupted their own banks but, worse, they have wrecked the global financial system and thereby the global economy, hurting tens, if not hundreds of millions of innocent, ordinary people. Bankers have been very bad boys (and a few girls) and they deserve to be punished.
Cries can be heard from around the world, from Congress to the Carolinas, from Russian ministers to Chilean cardinals; the demand is unanimous: Punish the bankers! Put them in jail. Claw back their bonuses. Make them suffer.
We know from our scientists that the urge to punish, the need to see retribution meted out is a primitive urge, perhaps even hard-wired into our human brains. But I wonder whether this urge to punish is wise, let alone mature.
Let me take you through a little fairy tale of an analogy to see where the urge to punish, if indulged, might take us.
So, sit on my lap while I take you back to a few days before the invasion of Iraq in March, 2003. One evening, an emissary of Saddam Hussein came knocking at the door to the White House. He had a personal message from Saddam to a certain George W outlining an offer to resolve the standoff between the parties. For the price of $2 billion and safe conduct guarantees from each of the members of the U.N. Security Council, Saddam, his family and a few selected cronies from the Tikrit clan (Chemical Ali and the like) were prepared to evacuate Iraq and go into permanent exile in a safe country like Egypt. Saddam & Co. proposed to live quietly in luxury on an estate by the Nile and though they knew they could never venture out into the “civilized” world, like Paris or London, they demanded assurances that they would never have to fear facing justice or the International Criminal Court or punishment or retribution of any kind.
What would the U.S. get in exchange according to Saddam’s offer? They could choose an Iraqi general – whichever they fancied - to take control of the Baath party and government, a puppet leader to be sure, but a puppet that would maintain the apparatus of civil order; the U.S, military could establish a couple of bases in Iraq to ensure the security of (control over) the country; American companies could do business and help the Iraqi economy recover from the years of sanctions; oil would flow and quickly; and, best of all, the American government could search freely and to its heart’s content for W.M.D. The urge to punish? The torturers of the Saddam regime would face punishment; maybe trials for some lower-echelon thugs but more probably quiet “disappearances”. Saddam had no concern for the welfare of his underlings. If the U.S. wanted, the Baath Party could be purged of the worst elements, slowly leaving a core of capable functionaries who had joined the Party only as a means to a living and a way to get ahead in life. And who knows but some of them might leave the Party to establish new parties to compete in elections held in security thanks to the continuing vigilance of the Iraqi police and military?
Of course, George W. rejected Saddam’s offer out of hand. It was intolerable that these criminals escape punishment or retribution of any kind, let alone live in peace with a couple of billion. However, if George W. had restrained his primitive urges and sat back for a few minutes, he might have figured out that sending the Saddam clan off into exile would not necessarily leave them happy and relaxed, basking in the Nile sun, on a bed of roses. Not with a psychopath in tow like Saddam’s son, Uday, a rapist and torturer who had been spoiled his entire life and allowed every criminal excess that he pleased. Mr. Mubarak in Egypt would not look kindly on his citizens being raped and tortured by the gang up at the Saddam estate. In all probability the Saddam family would have ended up killing each other like some scene out of a B horror movie (or perhaps from Hamlet). Anyway, we will never know what might have happened because George W. wasn’t thinking straight, or wisely that evening. Mr. Bush wanted punishment, revenge, retribution and surely that would also have been the cry heard from around the world if anyone had even dared float the suggestion that Saddam might get away scot-free and with $2 billion in loot.
Well, we know what happened. We did get to punish Saddam and his sons but just think how much more we have hurt the Iraqi people and ourselves. $2 billion is petty change compared to the treasure expended in our military efforts. And would any family member of a slain soldier, or, indeed, would any soldier who had lost a limb declare that the sacrifice of life or limb was a price worth paying just for the gratification knowing that a dozen or so senior members of the Saddam regime had been punished?
So it is with the bankers. Whether we like it or not, the banking system constitutes an essential element of the global economy. If the banking system ceases to function, the economy will collapse and we will all be hurt. There are some on the extreme left and others on the extreme right who have found concordance in some kind of demonic scheme: they advocate allowing the banks to fail with a view to reconstituting a new set of banking institutions that will be more stringently regulated and stable. Others advocate nationalizing the banks and then reconstituting the banking system. What all agree upon is that the old guard of bankers should play no role within the new.
These schemes for re-creating the banking system differ not in one iota from the brilliant idea of one US functionary to not merely outlaw the entire Baath party in Iraq but also to disband the police and the army with a view to reconstituting new political and security forces that would bear no taint of the Saddam regime. Well, we know how that worked out. The plan simply created a massive vacuum of power and destabilized the entire country of Iraq. There was no mechanism of transition from the old structures of power to the new ones as imagined by Mr. Bremer or Mr. Rumsfeld.
So it would be if we gratify the urge to punish the old bankers and set out to create a new banking system. What would fill the vacuum of finance during the transition period? And who would run it? You think you could run a bank? Or Paul Krugman (with or without a Nobel)? Or, for that matter, do you think Nouriel Roubini could run a bank? However smart Mr. Roubini might be, it would take a long time before he could get up to speed. Can we afford to pay the price for novices to make their way along the learning curve? The global economy would experience in financial terms the same kind of chaos that the Iraqis experienced politically and in terms of violence after the Iraqi police and army were dissolved. And in the wake of financial collapse, who can say that there wouldn’t be similar political anarchy in certain European and developing countries?
I am afraid that there is no practical alternative to continuing with the banking system we have which means banks being run by the same set of characters that got us into this mess in the first place. Instead of punishing the bankers, we should be cosseting, pampering, even mollycoddling our financial leaders, indulging their each and every whim (including private jets) because, however repugnant it may be, however indignant we might feel, however strong our revulsion, any alternative is far, far worse.
Tuesday, February 24, 2009
Monday, February 23, 2009
Osama bin Laden is winning the war against the United States
Sorry to say, Osama bin Laden is winning the war.
Let us imagine for a moment that some 75 years hence we are sitting in a college freshman class studying modern economic history. Just as the kids today are compelled to puzzle their minds over the manifold contributory causes of the Great Depression, our future scholars have been set the task of figuring out what factors were involved, and to what degree, in creating the Great Collapse of 2008-9.
Different scholars, no doubt, will have attributed different weight to the various factors. There will be consensus that the abolition of Glass-Steagall in 1999 was a very bad idea. Similarly bad, all will say, was the relaxation of regulatory regimes governing banks, mortgage lending and securities trading. Academics will likewise agree that the creation of credit default swaps was yet another very bad idea, echoing the words of a financial wizard of the time, now long forgotten, who described them as financial weapons of mass destruction (W.M.D. not being an element of the future’s vocabulary, this archaism goes right over the heads of our students). Controversy however persists, in a small degree, between scholars over what weight is to be attributed to errors of policy from the Federal Reserve and the U.S. Government as causes of the Great Collapse.
Many future scholars claim that in the wake of the attack on the United States on September 11, 2001, two major errors were committed. Alan Greenspan, then Chairman of the Federal Reserve, reduced interest rates and kept monetary policy too relaxed and the price of credit too cheap for too long. The US Government, on the other hand, instead of placing its civilian economy on a war footing, urged its citizens to shop until they dropped” (another archaism) and, in addition, undertook two costly wars, in Afghanistan and Iraq, all the while running up huge deficits. Proponents of this school will draw the conclusion that the reaction to the attack by Osama bin Laden was what accelerated and exaggerated the Collapse, acting as a kind of catalyst to the underlying instability of an excessively liberal financial system. According to this way of thinking, the Collapse represented a kind of victory in the war between Osama bin Laden and the United States, with Alan Greenspan and then President George W. Bush playing the role of unwitting facilitators, if not collaborators.
Advocates of this school of thought will argue that Osama bin Laden did not set out to destroy just a couple of buildings that fateful day in 2001. What he hoped to accomplish was the collapse of the international capitalistic system. And just as it took several hours before the buildings collapsed on September 11 as the fireballs raged, so it took several years before the edifices of global capitalism began to teeter and then rapidly disintegrate. Perhaps, they will argue, Osama bin Laden did not mentally calculate every step between the initial blow at the World Trade Center and the collapse of the international economy; it is simply that he had an instinctive understanding and grasp of the degree of fragility of confidence that sustained the trade, investment and credit flows of the global economy, and he had an open contempt for the myopia, venality and greed of the business leaders, politicians and “statesmen” of the “Free World”, the purported guardians of stability of the world order.
Even before the Great Collapse became evident, it could be claimed that Osama bin Laden had been winning the war. Despite enormous expenditures of treasure and manpower and the efforts of the most powerful military, national security and intelligence machineries on the planet, involving more than a million men and women, the U.S. and its allies were no closer to capturing him on September 12, 2008 than they had been seven years earlier. Indeed his continued freedom could be interpreted as an act of defiance and contempt against the very values of the global capitalist order. Despite a price of $50 million on his head, not one of his associates had thought to sell out their leader. Moreover, bin Laden had won the acquiescence of the United States to his demand that they withdraw their military presence from Saudi Arabia in 2003.
It was, however, the destabilization of European and Middle Eastern societies and especially the Arab client states in and around the Arabian peninsular that Osama bin Laden had in his sights with the attack on the United States. By weakening and disrupting US economic and financial power in these regions and by creating havoc in their economies, he hoped to upend the political order that sustained – as he saw it – the subjugation of Muslims and precluded the creation of a single authentically Islamic political and cultural order from Andalusia (Spain) in the west, encompassing the entirety of Northern Africa in the South, and stretching to Iraq and the Central Asian states beyond in the east. The Arab client states that relied on US military and economic aid for their survival were, of course, particularly vulnerable. Indeed, US military power was sufficiently circumscribed by economic collapse at home and around the world to render infeasible intervention in the various insurrections that spread through Europe and the Middle East and North Africa at the end of 2009.
The subsequent global political instability, and the rise and fall of states in the wake of the Great Collapse, will be, of course, topics for another college course for our students of the future.
Let us imagine for a moment that some 75 years hence we are sitting in a college freshman class studying modern economic history. Just as the kids today are compelled to puzzle their minds over the manifold contributory causes of the Great Depression, our future scholars have been set the task of figuring out what factors were involved, and to what degree, in creating the Great Collapse of 2008-9.
Different scholars, no doubt, will have attributed different weight to the various factors. There will be consensus that the abolition of Glass-Steagall in 1999 was a very bad idea. Similarly bad, all will say, was the relaxation of regulatory regimes governing banks, mortgage lending and securities trading. Academics will likewise agree that the creation of credit default swaps was yet another very bad idea, echoing the words of a financial wizard of the time, now long forgotten, who described them as financial weapons of mass destruction (W.M.D. not being an element of the future’s vocabulary, this archaism goes right over the heads of our students). Controversy however persists, in a small degree, between scholars over what weight is to be attributed to errors of policy from the Federal Reserve and the U.S. Government as causes of the Great Collapse.
Many future scholars claim that in the wake of the attack on the United States on September 11, 2001, two major errors were committed. Alan Greenspan, then Chairman of the Federal Reserve, reduced interest rates and kept monetary policy too relaxed and the price of credit too cheap for too long. The US Government, on the other hand, instead of placing its civilian economy on a war footing, urged its citizens to shop until they dropped” (another archaism) and, in addition, undertook two costly wars, in Afghanistan and Iraq, all the while running up huge deficits. Proponents of this school will draw the conclusion that the reaction to the attack by Osama bin Laden was what accelerated and exaggerated the Collapse, acting as a kind of catalyst to the underlying instability of an excessively liberal financial system. According to this way of thinking, the Collapse represented a kind of victory in the war between Osama bin Laden and the United States, with Alan Greenspan and then President George W. Bush playing the role of unwitting facilitators, if not collaborators.
Advocates of this school of thought will argue that Osama bin Laden did not set out to destroy just a couple of buildings that fateful day in 2001. What he hoped to accomplish was the collapse of the international capitalistic system. And just as it took several hours before the buildings collapsed on September 11 as the fireballs raged, so it took several years before the edifices of global capitalism began to teeter and then rapidly disintegrate. Perhaps, they will argue, Osama bin Laden did not mentally calculate every step between the initial blow at the World Trade Center and the collapse of the international economy; it is simply that he had an instinctive understanding and grasp of the degree of fragility of confidence that sustained the trade, investment and credit flows of the global economy, and he had an open contempt for the myopia, venality and greed of the business leaders, politicians and “statesmen” of the “Free World”, the purported guardians of stability of the world order.
Even before the Great Collapse became evident, it could be claimed that Osama bin Laden had been winning the war. Despite enormous expenditures of treasure and manpower and the efforts of the most powerful military, national security and intelligence machineries on the planet, involving more than a million men and women, the U.S. and its allies were no closer to capturing him on September 12, 2008 than they had been seven years earlier. Indeed his continued freedom could be interpreted as an act of defiance and contempt against the very values of the global capitalist order. Despite a price of $50 million on his head, not one of his associates had thought to sell out their leader. Moreover, bin Laden had won the acquiescence of the United States to his demand that they withdraw their military presence from Saudi Arabia in 2003.
It was, however, the destabilization of European and Middle Eastern societies and especially the Arab client states in and around the Arabian peninsular that Osama bin Laden had in his sights with the attack on the United States. By weakening and disrupting US economic and financial power in these regions and by creating havoc in their economies, he hoped to upend the political order that sustained – as he saw it – the subjugation of Muslims and precluded the creation of a single authentically Islamic political and cultural order from Andalusia (Spain) in the west, encompassing the entirety of Northern Africa in the South, and stretching to Iraq and the Central Asian states beyond in the east. The Arab client states that relied on US military and economic aid for their survival were, of course, particularly vulnerable. Indeed, US military power was sufficiently circumscribed by economic collapse at home and around the world to render infeasible intervention in the various insurrections that spread through Europe and the Middle East and North Africa at the end of 2009.
The subsequent global political instability, and the rise and fall of states in the wake of the Great Collapse, will be, of course, topics for another college course for our students of the future.
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