We can change governments, but we cannot change corporations. Revolutions bought with blood our right to change our government, but only the 1% change change the corporations' policies.
Mr. Charles Plosser ("When a monetary solution is a road to
perdition," Financial Times, 18 May 2012) argues that governments need to be constrained or they resort "...to the printing press to avoid making tough fiscal
decisions." This is a typical argument we see in the press, making government
the evil. In Adam Smith's Wealth of Nations it is not government that is the problem, but corruption of government by the wealthy, by special interests.
Plosser forgets in his revere on the separation of duties between "tax and spending" and money creation" that it was not an abstract government that engaged in the money creation that has led nations on both sides of the Atlantic to inject trillions now into the banking industry. Those who advised elected officials or who took
action like Hank Paulson were bankers or trained in economics like Larry Summers. Also, where there is a lack of separation is in those who cycle back and forth between banking institutions and government, like Tim Geithner and Robert Rubin (former Treasury Secretary under Clinton). There is no "firewall" of philosophy or interest between government and banking and we need one as this credit crisis proves.
In this Weekend issue of The Financial Times an interview with Cornel West appears where he makes the same argument and asks why Obama continues to follow the advice of Summers and Rubin and not Krugman and Stiglitz.
The May 10th issue of The Financial Times has two related articles on banking that
emphasize this problem. They seem to be consonant at first glance, but then, in detail, it is obvious that they are more than that. David Daokui Li writes about
being a central banker in China and the influence of politics in the role of banks in the Chinese contemporary economy. Chris Giles ("Bank Independence was a well-intentioned failure,") argues that the Bank of England's independence has been a farce. He argues that the BoE's inaction in the face of crisis in 2007 is inexcusable and questions whether a more involved or beholden banking board might have found
itself more responsive to the unfolding disaster. In reading these two
pieces, regardless of their physical proximity in the layout, one is
struck by how much we are ruled not by exact principles or ideologies
as by appearances. The seemingly Chinese Communist bank is active and
engaged, the capitalist Bank of England is stogy and aloof, while these may seem
like Monty Python caricatures as Giles alludes, what they really seem
to imply is the uselessness of our categories today. Mao's China prepared China for capitalism, the opposite of what Marx thought, India will not advance out of the poverty and oppression of the caste system until it has a similar social upheaval.
We are still bound to ideas of 19th century economics with Ricardo's ghost
penetrating discussions of the value of currency and stable prices with
Adam Smith's similarly mistaken ideas of money. This takes place in the
context of gambling with more than a trillion dollars in derivatives
which no one seems to understand (least of all the people at J.P.
Morgan who should know something), yet have exploded our concepts of
value. What is truly scary is to read the banter between bankers and
regulators while the economy has crashed and continues to burn. There
is no consistent thread of informed dialogue, rather a mocking
insistence that one side knows and the other is the problem. We seem
hell bent for leather now! (or "hell for leather" given Rudyard
Kipling's 1889 story). What we need are new voices from outside the
banking industry to present new ideas to either replace the existing
system or amend it in a way that it can function without creating
crises.
As the European Crisis continues to erupt and as more debt like the J.P. Morgan example explodes in the banking system, we will come to realize that the banking system is broken and needs a complete overhaul. This is apparent to some, but the question is how to achieve a change. FDR's bank holiday began with ones in the states and in Canada, small experiments at breaking up the major banks has to begin with Citibank, then to Bank of America, already a zombie and then the walking dead like J.P. Morgan, etc. The only thing that is holding them up is the government guarantee and without it the collapse will occur, but this injection of liquidity into these carcasses cannot go on as it is not reviving the economy. Focusing on the banks is a fetish of a discredited banking theory and must end for change to occur.