SMH:Banking problems bigger than pre-Lehman says Stiglitz
Nobel Prize-winning economist Joseph Stiglitz says the US has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers.
“In the US and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview overnight in Paris. “The problems are worse than they were in 2007 before the crisis.”
Stiglitz’s views echo those of former Federal Reserve chairman Paul Volcker, who has advised President Barack Obama’s administration to curtail the size of banks, and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing “excessively.”
A year after the demise of Lehman forced the Treasury Department to spend billions to shore up the financial system, Bank of America’s assets have grown and Citigroup remains intact.
In the UK, Lloyds Banking Group, 43 per cent owned by the government, has taken over the activities of HBOS, and in France BNP Paribas now owns the Belgian and Luxembourg banking assets of insurer Fortis.
While Obama wants to name some banks as “systemically important” and subject them to stricter oversight, his plan wouldn’t force them to shrink or simplify their structure.
Stiglitz said the US government is wary of challenging the financial industry because it is politically difficult, and that he hopes the Group of 20 leaders will cajole the US into tougher action.
G-20 steps
“We aren’t doing anything significant so far, and the banks are pushing back,” he said. “The leaders of the G-20 will make some small steps forward, given the power of the banks” and “any step forward is a move in the right direction.”
G-20 leaders gather next week in Pittsburgh and will consider ways of improving regulation of financial markets and in particular how to set tighter limits on remuneration for market operators.
Under pressure from France and Germany, G-20 finance ministers last week reached a preliminary accord that included proposals to claw-back cash awards and linking compensation more closely to long-term performance.
“It’s an outrage,” especially “in the US where we poured so much money into the banks,” Stiglitz said. “The administration seems very reluctant to do what is necessary. Yes they’ll do something, the question is: Will they do as much as required?”
Global economy
Stiglitz, former chief economist at the World Bank and member of the White House Council of Economic Advisers, said the world economy is “far from being out of the woods” even if it has pulled back from the precipice it teetered on after the collapse of Lehman.
“We’re going into an extended period of weak economy, of economic malaise,” Stiglitz said. The US will “grow but not enough to offset the increase in the population,” he said, adding that “if workers do not have income, it’s very hard to see how the US will generate the demand that the world economy needs.”
The Federal Reserve faces a “quandary” in ending its monetary stimulus programs because doing so may drive up the cost of borrowing for the US government, he said.
“The question then is who is going to finance the US government,” Stiglitz said.
Sydney Morning Herald
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It’s probably worth remembering that Stiglitz detests the current White House Economic Advisor Larry Summers, so is highly unlikely to be positive about economic prospects anyway!
Having said that, Stiglitz’s recent work on moving away from an obsession with GDP as a measurement of ‘economic growth’ gets that debate right out into the open:
http://www.neurope.eu/articles/96146.php
Having expected GDP figures to have to start turning positive, the question now is how much longer QE is kept going, creating asset bubbles (including housing?) on the way and against what economic backdrop on the ground…?
Tony B.
Colluding land monopolists and banking monopolists have crashed the global economy and devastated our future. Private banks have proven themselves ungovernable- a law unto themselves, and a global tyranny everywhere inflating land credit bubbles.
As Abraham Lincoln said,’No duty is more imperative for the government than the duty it owes the people to furnish them with a sound and uniform currency…’ ‘Money is the creature of law, and the creation of the original issue of money should be maintained as the exclusive monopoly of national government’….’The privelege of creating and issuing money is not only the supreme prerogative of government, but it is the governments greatest creative opportunity’.
‘Money will cease to be the master and become the the servant of humanity. Democracy will rise superior to the money power’.
These quotations are from Abraham Lincoln’s Monetatry Policy (1865),
Senate Document 23, Page 91.
The exclusive monopoly power private banks enjoy in the issuance and allocation of credit fuels the land credit boom/bust cycles now globally synchronised. Henry George’s land reform and Lincoln’s monetary reform go hand in hand in the Jubilee laws of Leviticus (Ch 25). If we waste the opportunity this global banking crisis affords we remain slaves by choice and sacrifice the earth and future generations to our monetary idol. Let’s grasp the means to share this wonderful earth with respect to every living thing, or lose it all. Time to decide.