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Bank-Bashing or System-Criticism
by Ullrich Busch
Tuesday Feb 26th, 2013 8:01 AM
Through their business models and dubious financial products, the banks doubtlessly helped in the eruption of the crisis. But firstly this does not apply to all banks and secondly thyis was only possible after other actors - politicians, borrowers and investors - joined in the game and supported the casino with all their strength.

by Ulrich Busch

[This article published in: Das Blattchen on 2/20/2013 is translated from the German on the Internet,]

In an economic regard, the 21st century will not prove to be a success story. This is true at least for Europe, Japan and North America. The telecommunications- and Internet bubbles suddenly burst worldwide and the “New Economy” failed as a bearer of hope of post-industrial growth. Then the “policy of cheap money” in the US and elsewhere ultimately led into a deep crisis. The result was a banking- and financial market crisis that reached its peak with the Lehman bankruptcy in 2008 and finally triggered a worldwide economic recession. This called the states into action to bailout the banks and stabilize the economy. This only succeeded at the cost of an escalating state indebtedness. Since then, neither an economic upswing nor a dismantling of the huge debt mountain has succeeded in Europe. Moreover a rise of inflation fomenting even more anxieties threatens in the medium term.

Given this stock-taking, the question is raised: who is responsible for this real mess? Is politics, the neoliberal ideology, economic theory, the financial markets or the banks responsible? Every day we read about this in the newspapers, hear reports and digest commentaries. The answer seems difficult and very complex. Experts argue, professors seek enlightenment and journalists strive for concise explanations. But this does not interest many people. They know the answer. This time it is a very simple answer: the banks are responsible!

First, it was the easy credit that triggered a boom and prepared the ground for crisis. Then the markets were infected with the invention of “toxic-financed products.” When collapse threatened the financial system, the state helped with tax funds and bailout the banks from ruin. Now these banks are holding back their money, causing a “credit crunch” and thus preventing the upswing. Instead of serving the economy, they speculate on the financial markets and make a fortune through bonuses they generously grant themselves. Many persons answer the question about responsibility and the culprits in the unending crisis this way. This is both a simple and a convenient answer since it fades out everything leading to a system criticism of capitalism. It denies massive political failure, the deregulation- and privatization mania of the 1990s, that first made possible the speculation mumbo-jumbo. It ignores the responsibility of the real economy and the non-banks for the crisis and their role as borrowers, shareholders and buyers of toxic securities. All this does not count if responsibility is assigned only to the banks and makes them scapegoats for the breakdown of a system, an ideology, a theory and a policy.

Doubtlessly the banks through their business models and dubious financial products helped in the outbreak of the crisis. But firstly this does not apply to all banks and secondly this was only possible after other actors – politicians, borrowers and investors – joined in the game and supported the casino with all their strength. Therefore it seems more than doubtful whether the bank-bashing is really appropriate or represents a mere diversionary maneuver to prevent a more far-reaching criticism.

Nevertheless a new and better framework for the banks and the financial markets must be created than the German government now proposes. The opposition insists the bill does not go far enough. They demand far stronger consequences including the shattering of the banks. Important stimulation comes from the Bremen economist Rudolf Hickel who published a pamphlet in the Econ Verlag publishing house titled “Smash the Banks” that has gone through several printings. The author gets even with the banks – fundamentally, uncompromisingly and irreconcilably. The title of his polemic is also a program. The banking system should be destroyed in its foundations through a “shattering that goes to the roots,” “abolishing” or “wiping out” parts of the banking business, “dismissing” personnel and rebuilding the “bank towers” in Frankfurt as “symbols of irresponsible profit greed.”

This radical attack is dictated by an enormous “rage” that hardly gives any room for a differentiated view and an objectively substantiated argument. But rage is a bad adviser for a specialist book. The argumentation slips all too easily into mere polemic. Excessive ranting and raving comes out of legitimate criticism... One of his central theses starts from a “division of money.” “Real money covered by the production economy” faces “the unreal fictional money.” “Creative money” is displaced by “fictional money.” This raises two questions: firstly, what characterizes money as “real” or as “fictional”? Secondly, what is “creative money” in contrast to “frictional money” which has the connotation of greed or rapacity? The suspicion arises that this distinction was merely constructed to provide a basis for criticism of the banks.

The proposals for a fundamental bank reform represent another critical point. That such a bank reform is overdue is undeniable. Bank reform has long been discussed among the experts. At last a concrete paper is now on the table with the government's bill. The core of this initiative is separating the speculative transactions of the banks of a certain magnitude from normal customer service and making the latter more secure. Hickel's proposals go significantly further. Since the universal bank system is a main problem in the German banking system, he urges its removal and the establishment of a “separated banking system” of the Anglo-American style. At the same time he demands a “shrinking” of banking. On one side, reforming the existing financial architecture seems indispensable. On the other side, that kind of reform should include its reorganization with regard to the demands of a globalized economy of the future, not simply the shriveling of the financial sector. Appeals to “return” the banks to their “original functions,” storing deposits and awarding credits and “abolishing everything else, “ “smashing,” “containing,” “scaling back” or simply “prohibiting,” as Hickel demands, appear rather counter-productive.

The idea of the author of opening up “the future through retrospect” - a formulation that could originate with Adam Mueller – is hardly suited as a guiding principle for the queued-up bank reform. It is a romantic fiction since on one hand it overshoots the economically-commanded measure of a de-financialization of the economy and on the other hand is oriented in models from the past, not in the prerequisites of the future.