" One of the reasons the "Big 5" US investment banks were permitted to go to 40:1 leverage by the SEC was due to their inability to profitably compete against the European banks, many of which were leveraged 50:1 or even 70:1."
And the reason for that was the deregulatory fever that began in the UK and US, coupled with neolib economics (Chicago school of economics, "blue water") and ideology. It spread laterally through governments and academia, becoming the new orthodoxy. It was propagated worldwide through US business schools which were thought (at the time) to be pre-eminent, and were heavily attended by foreign students.
At this stage, Europeans are doing their best to expunge the economics, the ideology, and to break the dominance of the financial sector along the US/UK axis. The Chinese, unlike Europeans, are not intimidated by US economic and financial power, or what remains of it. The only restraint on Chinese action is their desire not to damage global economics any more than has already been done. Nevertheless, they are actively opposing US/UK dominance by supporting Greece, for example.
As posted upstream Euro regulators are taking a much firmer stand on reregulation than either the US or UK. As we have noted, the Chinese have recognized the destruction wrought by 5 decades of neolib economics and ideology; they are initiating restraints on their financial sector. In different ways the Chinese are probably just as corrupt as the US, but they have over 1.5 billion people to placate.
The origins of global financial malpractice, and the epicenter of the economic shock are clear. They won't soon be forgotten; nor will the cost.
“We HATE you guys. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .we know the dollar is going to depreciate, so we HATE you guys but there is nothing much we can do.”
---
Mr Luo said China intends to maintain its separation of investment and commercial banking based on its observations of the US after repeal of the Glass-Steagall Act that enforced a similar division of banking activities.
“To some extent, Glass-Steagall has fuelled the crisis,” Mr Luo said. “The separation of commercial and investment banking is likely to stay longer [in China] than before.” Like senior financial officials in other developing nations – such as Mohammad Al Jasser, vice-governor of the Saudi Arabian Monetary Agency – Mr Luo also spoke out against what he called America’s laissez-faire capitalism.
“Government ownership was viewed as something negative but the pendulum is swinging the other way. Perhaps banking is [no different from] public utilities where government participation is necessary,” he said.
“Deregulation in the US has gone a little bit too far. The market can’t be omnipotent.”
Message 25409694
The story of how the world is reacting to the damage done is untold by self-centric US media. Perhaps that's just as well.
Jim |
