Home > Anarchy, Austrian School, Central banking, Mainstream failure > Who should take a bullet over the GFC?

Who should take a bullet over the GFC?

According to Edmund Conway of the UK Telegraph, the blame should be spread around.

That’s BS.

The blame clearly and undeniably lies at the door of the Pricks of Threadneedle Street. 

Here’s Conway’s attempt to channel the bankers’ mea culpa:

Who is really to blame for the financial and economic crisis? The answer is as frustrating as it is obvious: everyone and no one. In some sense all the members of both the public and City practitioners must take some responsibility for the worst slump since the Great Depression. Whether it is the bankers, the finance ministers, the hedge fund managers, the regulators or the members of the public who borrowed too much, we are all to a greater or lesser degree culpable for the crisis. In the broadest sense of all, human nature is to blame – whether it is the irrationality that tends to cause and magnify business cycles or our inability to challenge the status quo.

But without doubt some are more guilty than others. As far as some are concerned, the fault lies most specifically with the financial system and the bankers who created the toxic debt instruments, and, furthermore, lined their own pockets with the proceeds.

However, in what may in time be judged as a seminal contribution to the debate, the Institute of Economic Affairs has now published one of the most detailed analyses on the causes of the crunch, and their powerful conclusion is the opposite: that it was governments and regulators who erred. Moreover, that the people most often berated for their part in the crisis – the hedge fund managers and those who run tax havens – are among the least guilty. Meanwhile, the regulators have secured a massive reward for failure, in the form of more funding and new responsibilities.

A letter to The Daily Telegraph, signed by some of the country’s most renowned economists, outlines precisely what went wrong and spells out the need for a radical overhaul to ensure it never happens again:

“Perhaps the most important point: central banks should have done more to ensure both prices and debt did not balloon out of control. In the early years of this millennium, following the dotcom bubble, central bankers ought to have kept interest rates higher. Likewise, those in surplus nations should have tried to encourage their public to save slightly less. Instead, the cabal of central bankers, led intellectually by Federal Reserve chief Alan Greenspan, ignored the massive imbalances that built up between nations and the asset bubbles inflating closer to home, judging that they could easily mop up after their explosion.

“The Bank of England and Financial Services Authority are to blame here: there are a whole variety of counter-cyclical policies they could have used – for instance compelling banks to keep more liquid cash or to build up more capital – but they refused to do so. Whatever they claim now about overhauling the system, the fact is that they had powers to do so before, but simply did not act.

“The IEA argument is that the shadow institutions – the hedge funds, private equity and tax havens – are becoming the scapegoats for the crisis. But in fact the real problems were to be found in the big banks and insurers, which were tightly overseen by national authorities. Much as we may disapprove of these other cogs in the financial system, it is unfair to blame them for the crisis.

“This proposal, together with the second, that banks should be allowed to fail, are among the more controversial propounded by the IEA. Their idea is to call for a more free banking system, in which customers are aware that banks are not always supported, and that in the event of a bank’s failure depositors will become creditors whose cash is not guaranteed.”

“One lesson from the crisis is that central banks must make sure they do not focus on one thing. Had the Bank of England paid more attention to the growth of money, it might have done more to prevent the debt bubble expanding. That said, the European Central Bank, which has a more explicit monetary focus than the Bank, has also been found lacking in its approach to monetary policy.”

Why do the Brits go to water when they try to point out the venality of mafioso bankers, or the idiocy of government, or the brainlessness of those who happen to be in power for no other reason other than their surname or their kindergarten education?  What is it about the “born to rule” class structure that strangles commentators when they need to identify those who were to blame for the biggest catastrophe the Brits have seen since the Great Depression?

I would prefer it if the economists would say: “One lesson from the crisis is that central banks have proven themselves to be the very definition of a moral hazard.  Central banks should be simultaneously killed off in a mass orgy of public humiliation and ridicule (preferably in the middle of a town square, like the old days). Banks should then be broken up and allowed to fail like any other business.  For depositors, the warning should be ‘caveat emptor’.  And for bankers, the warning should be ‘Jail for Fraud, like any other common crook.'”

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