Willem Buiter is the former chief economist of the European Bank for Reconstruction and Development. He’s not only smart; he’s well-informed and thoughtful. Today he wrote on his blog:
- We have no longer just a crisis in the financial system. We have gone even beyond the stage where there is a crisis of the financial system. The western (north-Atlantic) financial system we knew has collapsed. If I may paraphrase that great ensemble of Nobel-prize winning financial wizards, Monty Python’s Flying Circus:
“This financial system is no more! It has ceased to be! ‘It’s expired and gone to meet its maker! ‘It’s a stiff! Bereft of life, it rests in peace! If you hadn’t nailed ‘it to the tax payer’s perch it’d be pushing up the daisies! ‘Its metabolic processes are now ‘istory! ‘It’s off the twig! It’s kicked the bucket, it’s shuffled off its mortal coil, run down the curtain and joined the bleedin’ choir indivisible!! THIS IS AN EX-FINANCIAL SYSTEM!!”
He then comments– in terms that echo quite a bit of what I was writing here yesterday (though he does it more pithily),
- What is to be done? Banks that don’t lend to the non-financial enterprise sector and to households are completely and utterly useless, like tits on a bull. If they won’t lend spontaneously, it is the job of the government to make them lend. Banks have no other raison d’être.
Hear-hear to that last sentiment!
He writes that “the coercive powers of the state” are now required to get the banks to lend to the non-financial sector and to households, and suggests three ways this might be done. All look– from the point of view of the present owners and CEOs of the banks– fairly draconian. (One is the full-scale nationalization of the banks.)
Buiter also explicitly names the position the major banks are taking right now as a “bank lending strike.” He is quite correct to do so. By not lending, the banks are hoping governments will shovel yet more and more money their way, with little or no quid pro quo. They are holding society hostage. Governments must intervene– and not simply by shoveling money to the banks but by getting the economy going with or without the cooperation of the banks, while enacting emergency legislation that will force the banks to cooperate.
I am still very worried indeed that we will see no action of this kind in the US. Bush’s cabinet, Obama and his economic-team-in-waiting, and the Democratic leaders of Congress present and future all seem united– with just a few isolated exceptions in Congress– in being completely in hock to the bankers and their worldview. (What Buiter, back in May, called “cognitive regulatory capture.'” I would call it brainwashing.)
What a pity we don’t have a few more Buiters here in the US.