The Times has a photograph above its story on President Obama’s populist lunge at the banks with a protester holding up a placard reading: “Greed Kills.” Stupidity does, too. The real facts are that the tremendous economic growth and globalization unleashed in the 1990s did more to reduce poverty in the World and open up opportunities for the young than all the talking shops in Washington DC, New York, Brussels and Geneva achieved in the previous three decades.
Of course, there needs to be more regulation of the banks but “animal spirit” is what drives capitalism and for all its many faults capitalism has the potential to do more good for mankind that the Luddite and statist systems can ever accomplish. Obama’s proposals to limit the size of banks and return the clock back to Glass-Steagall — supported apparently by John McCain and applauded by the Conservative leadership in the UK — will, if put into effect, result in the following consequences:
Banking profits will be reduced, resulting in individual customers having to pay more for personal banking and small business will find it harder to secure loans at favourable rates.
New York and London (if the Conservatives or Labour follow suit in the UK) will see more banks, hedge funds and finance houses relocating outside their jurisdiction and benefiting Gulf and Asian countries (and Switzerland) – they will be happy to welcome them. The move in short will encourage a quicker shift in the balance of economic power away from the West.
There will be tax losses to the US and the UK, putting even more pressure on ordinary taxpayers to pay down the national debts.
Economic growth will be slower and it will take longer to recover from the recession.
The housing market will remain anaemic.
A better way to reduce risk without bringing about the consequences above would be to increase the capital reserves the banks have to hold. But that sounds less purposeful than denouncing “fat cats.”