The newly standard line from big global banks has two components - as seen clearly in the statements of Jamie Dimon of JPMorgan Chase and Robert E. Diamond Jr. of the British bank Barclays at Davos last weekend.
First, if you regulate us, we'll move to other countries. And second, the public policy priority should not be banks but rather the spending cuts needed to get budget deficits under control in the United States, Britain and other industrialized countries.
This rhetoric is misleading at best. At worst it represents a blatant attempt to shake down the public purse.
On Tuesday, in testimony to the Senate Budget Committee, I had an opportunity to confront this myth-making by the banks and to suggest that the bankers' logic is completely backward.Start with the bankers' point about budget deficits and spending cuts. Public deficits and debt relative to gross domestic product have ballooned in the last three years for one simple reason - the big banks at the heart of our financial system blew themselves up. On this point, the conclusions of the Financial Crisis Inquiry Commission, which appeared last week, are very clear and utterly compelling.
No one forced the banks to take on so much risk. Top bankers lobbied long and hard for the rules that allowed them to behave recklessly. And these same people effectively captured the hearts, minds and, some would say, pocketbooks of the regulators - in the sense that a well-regarded regulator can and often does go work for a bank afterward.
The mega-recession, which is starting to look more like a mini-depression in terms of employment terms for the United States (which lost 6 percent of employment and is still down 5 percent from the pre-crisis peak), caused a big decline in tax revenues. Falling taxes under such circumstances are part of what is known technically as the "automatic stabilizers" of the economy, meaning they help offset the contractionary effect of the financial shock without the government having to take any discretionary action.
Whatever you think about the effectiveness of the additional fiscal stimulus packages provided to the economy in early 2008 (under President Bush) or starting in early 2009 (under President Obama), remember that the impact of these on the deficit was small relative to the decline in tax revenues. - Simon Johnson
Concert Memories (Personal) - Video snapshots.
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