If you think the big banks are strong today, as they increasingly defy the government, how easy do you think it will be to take actions against their interests down the road?
Indeed. From credit card abuses to defying the Feds on the Chrysler bailout, big banks are acting in their own interests as always, despite nearly destroying the global economy in the past year.....Incredible.
Here's a bit more from Johnson on the need for more decisive action:
......inaction on banks has at least four adverse consequences:
- Banks will misallocate capital because of the perverse incentives that come from being undercapitalized; there is less incentive to make careful decisions when you think you may be out of business next year.
- The recession will be deeper because of greater uncertainty regarding the stability of our financial system. Uncertainty is highly debilitating for all long-term decision-making; it undermines investment and makes banks even less willing to lend. The I.M.F.’s World Economic Outlook (start with Chapter 1), which came out on Wednesday, puts on a brave official face, but is really not encouraging — global growth at a record minus 1.3 percent this year and only plus 1.9 percent next year (aside: reasonable growth, as measured by the I.M.F., is 4 to 5 percent per annum).
The Fiscal First strategy implies a large buildup of public debt to bail out industry and banks, and to provide a fiscal stimulus. While we “wait and see” on banking, our national debt grows, thus raising the taxes that all of us (and our children) have to pay down the road. A broader redistribution of post-tax income away from ordinary taxpayers continues.
In geopolitical terms, China is taking advantage of United States weakness to strengthen its claim on natural resources and build political ties by providing finance to weaker nations. To maintain its political position, the United States needs to be decisive in economic terms and get back to growth sooner.
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