Politicians who were responsible for the financial crisis that struck in 2008 have executed a successful campaign to shift responsibility on to “greedy” bankers. By focusing reforms on the financial sector they divert attention away from the way we are governed. This ensures that the next property cycle will terminate in 2026, with an almighty collapse that will eclipse the trauma now being endured in Europe and the US.
The latest example of buck-passing is contained in the interim report by the Independent Commission on Banking, which was created by British Prime Minister David Cameron. The experts were charged with defining ways to avoid another taxpayer bailout of banks in the next financial crisis.
Responsibility for the credit crunch is assigned to bankers who recklessly pursued profits in the knowledge that governments would bail them out. This is a nonsense argument that no-one questions. Find me one trader sitting at his desk in Wall Street or the City of London who believes that he won’t pay the price for a bad deal.
When traders gamble on the stock markets they do not have in their minds the thought that there is a taxpayer-funded insurance policy to protect them against their losses. Over the course of the business cycle – up to 16 years of growth, on average – many of those traders endure stupendous losses. They hope their losses can be offset by even greater profits from successful speculations.
Economic historians fear an honest explanation for the property boom/busts that always trigger financial catastrophes. They need an explanation for the regular cycle of ups and downs. Rather than attribute the responsibility to the incentives to speculate in the property market, they blame it all on the psychological failings of the money-lenders. Bankers apparently have short memories. They forget the consequences of over-lending to land speculators.
This theory is not challenged because it conveniently relieves the politicians and their economic advisors of responsibility. And yet, the published record is there for all to re-read. Time and again, it is the pursuit of the windfall gains from the land market that drives bankers to over-expand the credit in circulation. Who is to blame for that? Governments, purely and simply. They set the laws on property rights and tax rates. One combination encourages land speculation. Another combination would divert resources to the value-adding economy. Repeatedly, over the past two centuries, when governments had the choice to re-structure property rights and taxation, they bottled their responsibilities.
So, once again, the scapegoats are being lined up: this time, it’s the greedy bankers. Next time – who? I know who will not be blamed: the politicians.