“Does Banking Contribute to the Good of Society?”

Quelle horreur, some smart people are starting to question whether banking serves a redeeming social function.

Of course, in the abstract, it does. Banking (or more accurately, extending credit) is essential for commerce. But any essential support function, if it overpriced in relationship to its true value, becomes a drag on the productive economy. And our modern system is extracting a very large toll relative to its actual worth.

One argument against banking comes from Roger Bootle at the Telegraph (hat tip Swedish Lex); the other from Bill Black. Bootie makes a broader, philosophical argument, starting by distinguishing activities as creative (making something out of nothing and increasing net enjoyment) versus distributive (something that merely shifts benefits from one party or group to another). Activities fall along a spectrum, and Bootle asserts:

Successful societies maximise the creative and minimise the distributive. Societies where everyone can only achieve gains at the expense of others are by definition impoverished. They are also usually intensely violent.

He assesses modern finance against this standard and not surprisingly, finds it sorely wanting:

A leading British journalist recently decried the widespread condemnation of bankers’ and hedge fund executives’ high remuneration on the grounds that these people, it said, were “the wealth creators”…This completely misses the point….the question is, what has the process that generated this money contributed to the common weal?

Much of what goes on in financial markets belongs right at the purely distributive end. The gains to one party reflect the losses to another, and the vast fees and charges racked up in the process end up being paid by Joe Public…

Even what the great investors do belongs at the distributive end of the spectrum. The genius of the great speculative investors is to see what others do not, or to see it earlier. That’s all. This is a skill…I am not convinced, though, of the social worth of such a skill, still less of the wisdom of encouraging society’s brightest and the best to try to perfect it.

This distinction between creative and distributive goes some way to explaining why the financial sector has become so large in relation to GDP – and why those working in it get paid so much. Even when a certain sort of financial activity is purely distributive, the returns to the winning parties are so enormous that the activity is immensely seductive – and the professionals who appear to be responsible for securing these gains are highly sought after and highly rewarded….

And we need to consider the identity of the investors who are making a lower return to make it possible for hedge funds and their like to make a higher return. They are the investors in slow-moving and restricted institutions such as pension funds and insurance companies, or central banks whose market activities are dictated by some objective of public policy, rather than private gain.

Yet there are reasons why we should want such institutions to be this way. Pensioners do not want their pension funds to be run like hedge funds – or their insurance companies, or their central banks. So we have allowed, and even encouraged, a system to develop in which clever people make huge amounts of money out of institutions that, for reasons of public policy, we constrain in a way that allows scope for such profits to be made. Is that clever or what?

Perhaps the greatest problems are caused by the interaction between financial markets and the real economy. There, time horizons are longer, price adjustments are more sluggish, and motivations less single-mindedly selfish. And so much the better – for them and for us. But how are they able to withstand the onrush of supercharged greed that floods out at them from the financial markets? If we think that it is right and proper – and economically advantageous – that some parts of the economic system should not be organised like investment banks, then we should make sure that they are protected from those parts of the system that are organised like investment banks.

Bill Black, in “How the Servant Became a Predator: Finance’s Five Fatal Flaws,” at New Deal 2.0 is far more casutic. He starts by taking a position near and dear to the Japanese, that financial firms should not be very profitable, because high profits mean they were operating at the expense of the “real” economy (of course, the Japanese bank managed to wreck the economy anyhow, but that was partly if not largely the result of rapidly deregulating a very primitive banking sector. And I am not exaggerating in my characterization; recall I consulted to them in the mid-1980s. They had NO concept of cash flow based lending, for instance).

Black’s key arguments:

….the finance sector is worse than parasitic. In the title of his recent book, The Predator State, James Galbraith aptly names the problem. The financial sector functions as the sharp canines that the predator state uses to rend the nation. In addition to siphoning off capital for its own benefit, the finance sector misallocates the remaining capital in ways that harm the real economy…:

• Corporate stock repurchases and grants of stock to officers have exceeded new capital raised by the U.S. capital markets this decade. That means that the capital markets decapitalize the real economy….

• The U.S. real economy suffers from critical shortages of employees with strong mathematical, engineering, and scientific backgrounds. Graduates in these three fields all too frequently choose careers in finance rather than the real economy because the financial sector provides far greater executive compensation….

• The financial sector’s fixation on accounting earnings leads it to pressure U.S manufacturing and service firms to export jobs abroad, to deny capital to firms that are unionized, and to encourage firms to use foreign tax havens to evade paying U.S. taxes.

• It misallocates capital by creating recurrent financial bubbles. Instead of flowing to the places where it will be most useful to the real economy, capital gets directed to the investments that create the greatest fraudulent accounting gains…. Unless there is effective regulation and prosecution, this misallocation creates an epidemic of accounting control fraud that hyper-inflates financial bubbles….

• Because the financial sector cares almost exclusively about high accounting yields and “profits”, it misallocates capital away from firms and entrepreneurs that could best improve the real economy (e.g., by reducing short-term profits through funding the expensive research & development that can produce innovative goods and superior sustainability) and could best reduce poverty and inequality (e.g., through microcredit finance that would put the “Payday lenders” and predatory mortgage lenders out of business).

• It misallocates capital by securing enormous governmental subsidies for financial firms, particularly those that have the greatest political power and would otherwise fail due to incompetence and fraud.

The remarkable thing is that despite the ample evidence of the damage wrought by the financial sector, it has managed to secure even greater rewards for its predation and incompetence. But that is largely a function of media coverage, which has presented a picture flattering to the Obama Administration and and the perps. A Pew Research Center study on the coverage of the crisis concluded:

The gravest economic crisis since the Great Depression has been covered in the media largely from the top down, told primarily from the perspective of the Obama Administration and big business, and reflected the voices and ideas of people in institutions more than those of everyday Americans…

Citizens may be the primary victims of the downturn, but they have not been not the primary actors in the media depiction of it.

A PEJ content analysis of media coverage of the economy during the first half of 2009 also found that the mainstream press focused on a relatively small number of major story lines, mostly generating from two cities, the country’s political and financial capitals.

A companion analysis of a broader array of media using new “meme tracker” technology developed at Cornell University finds that phrases and ideas that reverberated most in the coverage came early on, mostly from government, particularly from the president and the chairman of the Federal Reserve, and that few Republicans in Congress articulated any memes that got much traction.

As the story moved away from Washington—and the news about the economy seemed to improve—the amount of coverage of the economy also dropped off substantially.

So with vested interests firmly in control of spin, is it any wonder that most people have been lulled into complacency, or at worst, sullen resignation?

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  1. fresno dan

    I think the arguements are unnecessarily rococo and complex. People who are paid to gamble with a renumeration plan of heads they win, tails I (taxpayers) lose, will always end up in this situation.
    Look at the salaries, bonuses, and manipulated stock options of the CEO’s – other than Greenberg of AIG, has even one lost any money, despite the incredible losses to shareholders and the economy?
    Banks don’t exist in a vacuum – Fed rates, the regulatory scheme, accounting rules – all believed that “credit is the lifeblood” of the economy. Credit is a tool, and is no more helpful to an economy than a hammer is to buidling the space shuttle (i.e., helpful, but not the be all and end all)

  2. reason

    There is something CRUCIAL missing from this analysis. The importance of LEVERAGE and LIMITED LIABILITY being combined, particularly in hedge funds. That is the real rort, and it is hidden away from view. Hedge funds enable huge gambles to be made, with a limited downside. And of course all those bets become self-fulfilling as credit expands.

  3. reason

    I think we need to get someone to trace this all through in detail, so we have some facts to lay on the table and not just speculation and rhetoric. I don’t really understand how FIRE garnered such a big share of national income.

    I think there has been slow stealing from the middle-class based on consistant irrational biases on the part of the middle-class. It has to do with exploiting positional goods, to ratchet up debt levels.

    Largely, people have been sold the illusion of land ownership, whereas really the bank owns it all and the people only own the liabilities of land ownership, and pay rent to the banks. This is not true of every individual, but it is reality for very many. And the bank can do this. By steadily reducing lending standards, they can bid up the price of land. And because land is a positional good, it is a zero sum game – there is no net gain to anyone apart from the bank and land developers to land price inflation. Stricter technical building codes would at least channel some of the spending into better quality housing, but from what I hear thats not the case.

  4. carol

    ¨some smart people are starting to question whether banking serves a redeeming social function.¨

    Well William Black and many others, you included, have asked that question for a long time. And many have already answered it, a long time ago. Are we running circles: have we lost the debate?

    Just an example: while with an abundance of valid arguments the TBTE (too big to exist) should have been split up and partly shut down, the big ones have become even bigger. Recently, Simon Johnson had a discussion with a senior advisor on the White House economic team and guess what she said: ¨We have created them [our biggest banks], and we’re sort of past that point, and I think that in some sense, the genie’s out of the bottle and what we need to do is to manage them and to oversee them, as opposed to hark back to a time that we’re unlikely to ever come back to or want to come back to.”
    So, the White House has given in, and accepted that too big to fail has become even bigger to fail.

    Re Japan: … ¨a very primitive banking sector. And I am not exaggerating in my characterization; recall I consulted to them in the mid-1980s. They had NO concept of cash flow based lending, for instance¨

    Yves, you made my day ;-)
    Over the last decade, many US and EU banks and IB´s also had NO concept of cash flow based lending: they only looked at the inflated balance sheet, and applauded the high numbers, not thinking for a second about the cash flow (non-Wall Street workers income) needed to service the interest on all those loans. In the end, overly complex just morphs into primitive.

    ¨…But that is largely a function of media coverage,..¨

    Many have observed that not a single Pulitzer prize this year went to a financial crisis article.

    And what about this snippet in the Bloomberg article linked above (Geithner aides reaping millions working for banks): ¨Sperling also drew a $137,500 salary from Bloomberg News for writing a monthly column and appearing on television¨
    12 columns and some tv appearances, probably just talking his books, got him $ 137,500 ?!
    Often it appears as if Wall Street is paying the press, for copying their talking points; some apparently get paid, generously.

    1. DownSouth

      carol said:

      ¨some smart people are starting to question whether banking serves a redeeming social function.¨
      Well William Black and many others, you included, have asked that question for a long time. And many have already answered it, a long time ago. Are we running circles: have we lost the debate?

      It’s one of the great, perennial debates of all times:

      And when through an ancient and still powerful state there spreads a mood of deep discouragement, when the reaction against recurring ills grows feebler…when learning languishes, enterprise slackens, and vigour ebbs away, then…there is present some process of social degeneration, which we must perforce recognize, and which, pending a satisfactory analysis may conveniently be distinguished by the name of “decadence.”
      –Arthur J. Balfour, Lecture on “Decadence” at Newnham College, January 1908

      Historians who live in democratic ages are not only prone to attribute each happening to a great cause but also are led to link facts together to make a system… As it becomes extremely difficult to discern and analyze the reasons which, acting separately on the will of each citizen, concur in the end to produce movement in the whole mass, one is tempted to believe that this movement is not voluntary and that societies unconsciously obey some superior dominating force… Thus historians who live in democratic times do not only refuse to admit that some citizens may influence the destiny of a people, but also take away from the peoples themselves the faculty of modifying their own lot.
      –Tocqueville, Democracy in America

      The economists and financiers always get it wrong, self-servingly so because, after all, who doesn’t want to shroud themselves in a bloated sense of self-importance and undeserved remuneration? So problems that are cultural and political in nature get classified as economic, which means economic solutions are sought for cultural and political problems. And of course no solutions are ever found, because they’re looking in the wrong place.

  5. DownSouth

    Ah, the unmistakable death throes of a once-great empire in its final hours.

    The Castile of Gonzalez de Cellorigo was thus a society in which both money and labour were misapplied: an unbalanced, top-heavy society, in which, according to Gonzalez, there were thirty parasites for every one man who did an honest day’s work: a society with a false sense of values, which mistook the shadow for substance, and substance for the shadow…

    “Money is not true wealth,” he wrote, and his concern was to increase the national wealth by increasing the nation’s productive capacity rather than its stock of precious metals. This could only be achieved by investing more money in agricultural and industrial development. At present, surplus wealth was being unproductively invested—“dissipated on thin air—on papers, contracts, censos, and letters of exchange, on cash, and silver, and gold—instead of being expended on things that yield profits and attract riches from outside to augment riches within.”
    –J.H. Elliott, Imperial Spain: 1469-1716

    This lack of initiative and enterprise in so many Dutch industries, and to some extent in Dutch agriculture, afforded a striking contrast to the state of affairs a hundred years previously, when Dutch entrepreneurs, industrialists and technicians were in the van of commercial and technical progress in the Western World…[A]s a contributor to De Koopman ruefully acknowledged in 1776: “We are no longer innate inventors and originality is becoming increasingly rare with us here. Nowadays we only make copies, whereas formerly we only made originals…”

    The contemporaries who bemoaned the economic decay of the Dutch Republic in the last half—more especially in the last quarter—of the 18th century were inclined to place the principal blame on the allegedly self-satisfied and short-sighted rentiers and capitalists, who preferred to invest their money abroad rather than in fostering industry and shipping at home and thus relieving unemployment.
    –C.R. Boxer, >i>The Dutch Seaborne Empire: 1600-1800

    [W]hereas at one time England was the greatest manufacturing country, now its people are more and more employed in finance, in distribution, in domestic service…I think it is worthwhile to consider—whatever its immediate effects may be—whether that state of things will not be the destruction ultimately of all that is best in England, all that has made us what were are, all that has given us prestige and power in the world…

    Granted that you are the clearing-house of the world, but are you entirely beyond anxiety as to the permanence of your great position?…Banking is not the creator of our prosperity, but is the creation of it. It is not the cause of our wealth, but it is the consequence of our wealth; and the industrial energy and development which has been going on for so many years in this country were to be hindered or relaxed, then finance, and all that finance means, will follow trade to the countries which are more successful than ourselves.
    –Joseph Chamberlain
    Quotes taken from Aaron L. Friedberg, The Weary Titan: Britain and the Experience of Relative Decline, 1895-1905

  6. Skippy

    Um me thinks we have a legacy bond holder infestation, I personally lay it at the great family’s of Americas feet.

    Skippy…tired of chasing the dog and its tail…when the flea’s are that which dive it mad…creating wild gyrations and knocking over our measly possessions.

  7. Toby

    I think fundamental questions need to be addressed regarding money and banking:

    1. Is money’s logical bond with scarcity an insoluble (almost congenital) problem in that it inescapably, though fitfully and slowly, leads to increasingly entrenched societal divisions via hoarding and protecting self (or group/class) against the horrors of poverty?

    2. Can a money be designed that does not assume, over time and because of money’s bond with scarcity described in 1., too powerful a role in society; that is, a money that does not stimulate hoarding and fear of want?

    3. Can high culture operate and sustain itself without a medium of exchange?

    I believe money inherently encourages corruption, not in everyone, but in a sufficient proportion of people for it too slowly become a systemic problem, particularly cyclically. DownSouth’s fascinating post shows over what sort of a period this rhythm has bedevilled humanity.

    Where there is money, there must (it seems to me) be banking, unless a totally automated, non-commodity, zero-cost money could be invented. Money is, by design, an encourager of parasitic economic activity, a motivator of those understandable impulses to achieve “the good life” of idle leisure, the accomplashing of which is sadly interpreted as a sign of ultimate success. Living off interest (or similar) should not be seen as a sign of success.

    So, my lunatic-fringe suggestion is addressing these questions openly and honestly by testing the idea of a resource-based economy, the successful operation of which we are, technically at least, now capable.

  8. Michael Fiorillo

    An important post about what is probably the most critical questions facing the Republic: will an ever-narrowing slice of the population (FIRE, in shorthand) be able to skim off the fruits of what’s left of the productive economy, to the detriment of the majority and body politic, and what repressive measures will put in place to protect those ill-gotten gains from the frustrations of the “losers?”

    Brand Obama (his people’s term, not mine) has been successfully test-marketed to put in place a de facto form of the structural readjustment that afflicted developing nations in the 80’s and 90’s: currency devaluations, declining wages, privatization (occurring at a rapid pace with the public schools, coming soon to Social Security), etc. The robocop response to the G-20 demonstrations in Pittsburgh is a taste of things to come, should people in the US be so rude as to question their overlords.

    Behavior is the most honest form of communication, and that leads to the conclusion that the 2008 election was a phenomenal bait-and-switch job: voting for “hope” and “change” has lead to withering public services, deeper entrenchment of oligarchic control and intensifying repression in order to maintain imperial delusions.

  9. Dan Bednarz

    “Too big to fail” banking and finance are functioning in parasitic instead of symbiotic fashion. This is because they are ensconced in an economic system that requires constant expansion of what looks like wealth but is really symbolic (money), which you cannot eat or put in your gas tank. This expansion impulse is now in conflict with what geologist King Hubbert called the energy and matter supply of the earth -the distal foundation of human economies. In short, we’ve reached the limits to grwoth but institutions based on grwoth are trapped in a scientific paradigm -which creates a cultural mythology- that can only strive to grow (by whatever means necessary), even if means creating mounds of debt that can never be paid off because we do not have the energy and matter (resources) to cover these debts.

    Finally, the financiers still maintain a legal claim on resources through the money they continue to accumulate, so it’s not as if “money” is irrelevant.

  10. jake chase

    You don’t seem to understand what ‘banking’ has become. We now live in a world of limitless electronic money in which economic ‘actors’ scramble for ‘returns’ through trading. Of course, there is a productive sector which makes and trades in goods, but an increasing part of its financial activity is dodging risk associated with interest rate and currency movements through activities which can only be characterized as trading. Banks enable this and they are set up to grab a profit on every trade while (hopefully) laying off their bets. Of course, this is pretty much impossible, particularly when the effort is focused on slavish devotion to mathematical expressions of historical price series. During periods of financial stress markets disappear and counterparties blow up. The bank’s history of little profits is overwhelmed by a giant loss tsunami.

    Of course, bank traders understand this, but their bonuses accrue faster than their risk bombs detonate. The financial sector owns the political sector and the blowups are zero cost to it. There is no way in which this trading activity serves any public interest, except very temporarily. In this case it presently enables the US Treasury to borrow at real interest rates approaching zero. How long this will continue is anyone’s guess.

  11. rd

    Banks are necessary to provide an orderly way of redistributing capital through society to enable it to reach its most productive users. Unfortunately, that is only about half of our financial system today. The other half exists to enrich itself at the expense of the people who would notrmally be some of the productive users of capital.

    Today, they could be moving back towards their beneficial role in society if they were using their profits to become solvent again so that we could release the government expenditure and promises on bank guarantees so that taxpayer money could be used for more productive purposes than guaranteeing bonuses for bank executives. By now the banks balance sheets should be showing a rapid implosion of their leverage that was grossly overextended a year ago. They should all be looking much more like Canadian banks now. Instead, I fear that we are in the middle of a massive transfer of wealth from the main in the street to the bank executives.

    The same arguments can also be made about the legal system today. The law is critical to a stable society. However, the legal system has slowed to a point that tortoises look like Olympic sprinters. Entering into litigation today is like watching a football game where the coaches have unlimited challenges and have the right to appeal each decision even after replay is reviewed. As a result, lawyers get alot of money without accomplishing much in achieving an orderly society. I believe that this is one of the reasons why we are continuing to see the level of malfeasance with little punishment even though there are now bookshelves of laws and regulations that are supposed to prevent the malfeasance. The vast majority of these laws and regulations could not even be conceived of in the 1920s and yet we are seeing the same level of fraud and corporate misdealing as we saw then.

  12. emca

    Thanks for your posting reflections on failures of previous sovereign entities. It helps place the needed historical perspective on the argument. The quote:
    [quote][W]hereas at one time England was the greatest manufacturing country, now its people are more and more employed in finance, in distribution, in domestic service…I think it is worthwhile to consider—whatever its immediate effects may be—whether that state of things will not be the destruction ultimately of all that is best in England, all that has made us what were are, all that has given us prestige and power in the world…[/quote] is most appropriate to the current situation; you could substitute “U.S.A.” for “England” without any lose of meaning.

  13. James L. Buchal

    How long will it take before people recognize that government created the predator financial sector? No wonder Thomas Paine thought that any politician who even proposed legal tender laws should be killed immediately.

  14. donna

    This has been my point all along. They are no longer providing a productive service but merely extracting profit from the system to pay themselves. So the reform is needed to ensure that money once again funds productive development and not obscene bonuses. As is, the system is simply broken. Like CEO pay that is obscene compared to worker’s salaries since workers then can no longer afford to buy anything. Once the banks extract too high a profit, they are no longer funding productive investment. Why this is even a controversial issue at lal is beyond me.

  15. Hugh

    Bravo for Bill Black and Yves. This is exactly right. Whether you call it the paper economy or the financial sector, it is an entity which is not only unproductive but massively destroying of wealth. The trillions pumped into it have done no good to the vast majority of Americans and could have been redeployed to shore up the real economy and stabilize the finances of most Americans. The argument that we need to save the financial sector as it is currently constituted is one which is advanced by those who are mostly closely associated with it and who benefit disproportionately from it. But the choice was never keep the current system or do nothing and accept a collapse. We need to get rid of the current system and replace it with something better and more durable which answers to the needs of the country and its citizens and not a few self-serving elites.

  16. jake chase

    Thirty odd years of globalization under floating currencies have produced the following results in America: disappearance of manufacturing, reduced real wages, repeated financial bubbles, debauch of the dollar as a store of value, increasing returns to transactional paper shuffling (finance, law, insurance), chronic underemplyment and inflation of necessities (most of which is disguised by statistical slight of hand). These consequences are an inevitable result of free trade and unrestricted capital mobility.

    The dollar’s reserve currency status still allows America to borrow cheaply. We have a limited window to rebuild infrastructure and create real energy independence. Unfortunately, it is difficult to monopolize these activities, politicians have no idea how to establish them and cannot be trusted to see them through. Thus, our payoff from globalization is the $&*^ clogging the isles at every retail store. Although the workers cannot really afford to buy this stuff without credit, the banks will lend anyone all he wants at 27-30%, until the day his job disappears.

    Our middle class bought the fantasy that lower wages for workers would translate into stock market gains for their IRA plans. It worked okay for a while, didn’t it? Unfortunately, the executives learned how to game the market to enrich themselves. The banksters learned they could frighten the corporations over interest rate and currency risk and enrich themselves. The politicians understand that since we only have a choice of two candidates (and one is usually a moron), anybody who can manage to sound intelligent and sympathetic can grab power and then do exactly as he wants for the benefit of those backing his candidacy.

    So long as a vast majority remains ignorant of economic reality, we are hostage to a succession of opportunistic charlatans more or less guaranteed to appear one after another. Banking as currently practiced is merely one symptom of the free market globalization disease.

  17. LeeAnne

    Bootie’s statement: “The genius of the great speculative investors is to see what others do not, or to see it earlier. That’s all. This is a skill…I am not convinced, though, of the social worth of such a skill, still less of the wisdom of encouraging society’s brightest and the best to try to perfect it.” misses the worth of the skill of the speculative investor.

    For heaven’s sake anything in extreme is unhealthy. Consolidation of capital gave too much power to too few that enabled the ‘managers’ of capital to dismantle oversight of themselves and the rule of law in secrecy while corrupting representative government. As consolidation of capital increased, so did the political power of finance and corporations, particularly the power to corrupt representative government who had the responsibility for protecting the public who are the legitimate producers of wealth.

    Investors serve as knowledge processors, a useful tool for distributing capital. When transactions are published in a timely manner, accurately and lawfully regulated open publishing systems make transactions available to be analyzed and used for any purpose whatsoever including ‘social worth.’

    That does not however make a speculator a ‘wealth producer.’ There is no justification for legally permitting leveraged gambling of capitol produced by any profession other than investment bankers themselves heavily regulated; bankers are supposed to be acting as agents with fiduciary responsibility ot those who are busy producing capital hwo need protection for their savings and the preservation of the value of their currency. That has been destroyed and the destruction continues to be perpetrated against the American people.

    Gambling is a zero-sum game when the players are playing with their own money; they can win or lose only the money they have collectively put into the pot; therefore investment banking partnerships worked. Its when the gamblers in the casino decide to play with the money of the workers’ wages and savings, those designing the casinos, waiting on the tables, changing the beds in the hotel, and cooking in the kitchen that gambling is quite another story; or when the gamblers are cheating at the table raises the ante on the other layers secretly. It is then criminal and predatory. Subjecting the bystanders/taxpayers to the debts incurred by bankers is worse still and being covered up by market manipulations that have been going on for many years if not decades -and continues under the present administration.

    The failure of government to regulate; that is, government corruption, has brought about this collapse and produced, if not a giant squid, a literal blood-sucking tax on the American people by finance and related FIRE corporations. Taxes that go to government are at least presumably used for public benefit while the private sector CEOs, fighting against basic human health care for participants in the real economy, fly around in Hermes covered pillows on $30M jets, build $30 million vacation homes and import millions of illegals to wait on them -for cheap -jeez, never in the history of the world!

    And to think the creeps, lead by the FED have the power to hock the American people to pay for this crap for the next indefinite number of years; it will produce the largest number of professional criminals since the USSR if it hasn’t already. What incentive does anyone have to obey laws under such a system other than the risk of getting caught?

  18. Charles Kiting

    The only reason questions such as the title question get asked is because the subject wants special priveleges after enough customers become former customers.

    The answer is: No. It is just a business like any other business.

    1. Yves Smith Post author

      I suggest you read more carefully. The title of the post is in quotation marks because I decided to use the title of the Bootle article, since I quote him at length. So whatever aspersions you are trying in fact directed at Bootle.

  19. craazyman

    Why Banking is Great! :)

    In the scope of economic history — from primitive tribal barter cultures to the modern post-industrial society — it seems clear that money and banking have performed useful functions over the long-term, although with tremendous “moral volatility”.

    They broke down the tyrrany of the priest-kings, emperors, Popes and Princes. Money lubricated barter and trade. It created private property and made commoners out of peasants and citizens out of commoners and men and women out of them all — living in Levittown and drinking beer instead of pulling turnips in the Prince’s back 40. That inflatable pool says it all. No essay is required.

    That and Jesus and the Saints and Greek thought and Roman Law — all coming from the dark of the weird mind cage, like Caravaggio’s light on Matthew counting coins in the dark.

    Money was less relevant to a small tribal society — where your Karma is in your face — than a larger civilzation, where your karma shoots out anonymously and you can only feel it but not see it.

    Money and property — the particle/wave duality of spirit incarnate — became a metaphor for an extension of the boundaries of the person and a force of protection. Money was the great leveler, the Colt 45 of history. It seems far more than a medium of exchange, a method of payment and a store of value.

    It also has almost a mystical quality. It’s a measure of the Life Force, the force that drives flowers and insects and the imagination. And in that regard it has an unconscious sacred element, one that naturally belongs to all life and all people everywhere, the property of the Holy Spirit. It is, therefore, also a public good in the strictest sense.

    It’s profoundly immoral for a society to be structured in a way that deprives a large subset of its population of money. We consider this an evil. It cheats humanity of its metaphorical right to life and spirit.

    And so the broadening of credit, even through banks and bankers, is a metaphor for distributing the life force throughout society and enlarging the spiritual energies of a people.

    That force powers inspiration, imagination, innovation, invention. It can accumulate itself into a pool to drive extraordinary achievements and feats of group creativity. It can also subdivide itself to power the creative drive of a single person. Money is an electricity of the imagination.

    It’s ironic that a profession as stodgy and narrow as bankers would stand as the gatekeepers of the Great Life Force and hand it out — or not. They commit two sins. Giving too much of it out to the wrong people. Or not enough to the right people. It’s usually clear when they are sinning. But it’s harder to know how to keep them chaste.

    So we have rules and regulators, in theory.

    But when bankers “make” their own money by lending it negligently and even knowingly out to the wrong people and falsifying profits therefrom and putting cuts of it in their own pockets, they are counterfeiters and no longer bankers.

    It’s a fuzzy boundary. As counterfeiters they fake the life force and steal the life from society. Just as they do as hoarders. So yes, banking does contribute to society as a institution that channels the public good aspect of money, but it also can corrupt the public good aspect of money — the great duality of all things seen in this particular.

    It’s sort of a “guns don’t kill, but people do” argument.

    Beam me up, Scotty.

  20. Justicia

    Among others, Kevin Phillips called out the bankster racket in his book Bad Money (published in early 2008):

    “Far more worrisome is the possibility that neither Washington nor Wall Street is willing to confront the deeper problem — the ascendancy of finance in national policy making (as well as in the gross domestic product), and the complicity of politicians [add media pundits] who don’t want to talk about it.”

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