Sunday, October 25, 2009

A stimulus for bankers

Gillian Tett has an interesting and depressing piece in the FT - the idea is that the cheap money, intended to raise lending and therefore productive activity, is simply being exploited by banks to engage in hyper-leveraged trading. In other words, back to what they were doing before the crisis, minus the kind of 'main street' lending which an economic recovery relies on.
Added to the persistence of the bonus culture, it points towards a huge flaw in the recovery strategy - by focusing on throwing cheap money at the banks, it makes the whole economy entirely dependent on the banks playing ball. And why on earth would they do that if they can avoid it? Any chance of moral pressure on them to use their public subsidies to create public goods is undermined by the weakness of the government. They also have the excuse of rebuilding their capital base to duck their obligations to the wider economy.
So, maybe old-fashioned socialism is not such a bad idea after all - we could have nationalized the banks and forced them to use their public subsidies to help the real economy. And into the bargain, the stimulus spending should have been left to the government, not the market - we need public works, not a VAT cut (as anyone who uses public transport can see).
Yet another nail (intellectually, if not politically) in the coffin of neoliberalism.