Let the Banks Burn
The banking system we take for granted is unfixable. The good news is that we no longer need to rely on any private, rent-seeking, socially destabilizing network of banks, at least not the way we have so far.
ATHENS – The banking crisis this time is different. In fact, it is worse than in 2007-08. Back then, we could blame banks’ sequential collapse on wholesale fraud, widespread predatory lending, collusion between ratings agencies, and shady bankers peddling suspect derivatives – all enabled by the then-recent dismantling of the regulatory regime by Wall Street-bred politicians, like US Treasury Secretary Robert Rubin. Today’s bank failures cannot be blamed on any of this.
Yes, Silicon Valley Bank had been foolish enough to assume extreme interest-rate risk while serving mostly uninsured depositors. Yes, Credit Suisse had a sordid history with criminals, fraudsters, and corrupt politicians. But, unlike in 2008, no whistleblowers were silenced, banks complied (more or less) with the post-2008 beefed-up regulations, and their assets were relatively solid. Moreover, none of the regulators in the United States and Europe could credibly claim – as they did in 2008 – to have been blindsided.
In fact, regulators and central banks knew everything. They enjoyed full access to the banks’ business models. They could see vividly that these models would not survive the combination of significant increases in long-term interest rates and a sudden withdrawal of deposits. Even so, they did nothing.
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