Down and Out

Posted by MadScientist (Düsseldorf, Germany) on 5 April 2009 in Transportation.

Regarding all these bank bailouts and the usual justification politicians and experts specify ('If banks are falling, the whole business system will fail.'), one could ask if really every bank is system relevant. Let's discuss this thought.

Actually there is enough money floating freely in the world. If enterprises or countries got caught on the credit crunch, then it's not because of too few money but the loss of credit, or trust. As of the mid 1970s and after the Bretton-Wood system with its monetary policy that maintained the exchange rate of currencies within a fixed value, the neo-liberal movement provided for an enormous amount of money. New financial products, like hedge funds or 'shadow banks', the rapid increase of financial gains, were the method of choice; while expected rates of profit increased from 10 percent of equity capital to 25% and more. The growing divide between rich and poor and the disposition for a life on the nod provided for a growing global glut of money. When in 1980 the world-wode real economy had advantage over business finance at a 2:1 ratio, this changed in the meantime to a ratio of 1:3.5. So we can state that there is indeed very much money in the markets.

This plethora of money is looking for lucrative investments. As long as rates are increasing and fresh money keeps coming in, this system profitably works, of course at the expense of the real economy and the surplus value it creates. Even without the recent financial crisis, the economical crisis reveals the bloated financial capitalism as Ponzi scheme.

The glut of money allowed banks to expand sharply. Germany, for example, has 2000 banks and savings banks. The balance sheet total of Deutsche Bank accounts for more than 2000 billion Euros, barely fewer than the GDP of Germany, thus showing the scale of money transaction. De facto the recent crisis is a crisis of overproduction in the financial industry, where needless money was pumped into needless financial products.

So why not let foot the bill all these who backed the wrong horse: the reckless players, gamling bank managers and ripped-off shareholders? Because of the jobs? They could be saved with considerably less money. No, politicians say, the banks have to be saved because of their relevance for the financial system and the national economy.

Agreed, without financial services, economy wouldn't work properly. We couldn't draw money from our giro account, and most companies wouldn't survive without credit payments. But not every all-purpose or special-purpose bank is equally important for that system to the same extent. Perhaps the system would continue working even better with fewer banks? The domino effect that would make other banks fail as well (a popular doomsday scenario bankers and politicians like to point out) wouldn't be much of a problem - a bank that goes bust because of the bankruptcy of another should have lost its license long before.

In fact the real purpose of many bailouts aims at a national industrial policy in favour of the international operating banks, as the collapse of a big bank would cause a competitive disadvantage against the banks of other countries. When it comes to secure the stability of the financial market, usually the dispossession of a bank is considered "ultima ratio", but the opposite, the insolvency of a bank, would be the method of choice. In fact quite the reverse is true. Confiscating a bank, establishing new guidelines, exchange of management, a qualified control under participation of the staff, would not only socialize the losses but also the gains that would reappear in the future. (via)

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