We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.

Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

Samizdata quote of the day

It’s not capitalism when private individuals stand to gain from their actions but the taxpayer carries the risk. When risks are socialised and potential profits huge, individuals are bound to be reckless: why be responsible? It’s no good agonising about the culture of banking without considering the astronomical moral hazard endemic in the system today. Of course people who do not have to bear the negative consequences of their actions behave badly.

- Steve Baker MP

8 comments to Samizdata quote of the day

  • Although Steve Baker is one of the good guys, this quote is a bit 3rd time around.

    It’s been true since the 1930′s if not earlier.

    Whenever banks get bailed out without having to take a haircut or get nationalized there is always public subsidy, the only question is how much and who benefits.

    This is why there should be no banking bailouts (ever) and no depositor insurance. If a depositor wants insurance then they should get it from an insurance company not the state. This is true regardless of whether it is FDIC or one of the global variations on a theme.

    Then banks WOULD carry the risk of failure and as a result would be less likely to take risks and more likely to limit their proprietary trading exposure.

    We should reintroduce full fiduciary care on anyone with a banking license, that would bring the buggers back under control – revolutionary or what.

    I’d even go further and disallow banking institutions from having any limited liability insisting that they be restricted to partnerships where they retain full liability for their losses just as Lloyd’s names do (or at least did before the fiasco of the 1980′s / early 1990′s).

  • RRS

    We are bombarded with cavils on:

    Privatizing the gains while socializing the risks and losses

    How is that “socializing” created. What has to happen for it to occur?

    In former times (Lombard Street) bank failures “socialized” losses; that is, spread the losses over those other than those entitled to potential gains. Of course, the latter also lost, at least to some extent.

    The forms of “socialization” of losses, as currently being demonstrated in Europe, are created for political purposes by particular interests with diverse but compatible objectives.

    In the U S, our Chief Justice has just warned us to be politically vigilent if we are to avoid coercion. That coercion can expand to (and has included) participation in continuing “socialization.”

  • How is that “socializing” created. What has to happen for it to occur?

    The banks were sitting on enough bad loans that there was a potential for a ‘collapse’ of the banking system although what would have happened would have varied from institution to institution.

    By creating new money and injecting it into the banks the government has essentially ensured that taxpayers (i.e. the socialized bit) have covered the losses for the banks.

    That these loans / capital injections / shares might possibly be turned to profit through interest / public share sales at some future date does not justify taking such risks with taxpayers money.

    If the banks hadn’t been given a lifeline from the government then they would have had to seek alternate private funding (e.g. sovereign wealth fund), liquidate or go bust.

    Although there would have been some measure of financial distress, businesses and their directors / shareholders would have been appropriately punished.

    As it is the likelihood is that the taxpayer will be punished.

  • RRS

    The use of the term “Socializing” has lately taken on an almost exclusive meaning of transfering costs, losses, benefits, obligations, resposibilities, etc. through the aegis of governmental or political functions.

    Is that exclusivity justified?

    In the integrated economic system of our social order, as it has evolved, and continues to evolve, the effects of costs and losses are not disaggregated from the effects of the benefits of the system.

    Where particular economic mechanisms have evolved, such as those which provide for commonally accepted credit reliance (trust), and the social benefits of exchanges through the use of credits are spread, it will be in the nature things that some portion of the losses from a collapse of those credits will be born by all who have benefited.

    As the late Clement R. Mc Comack noted, all “costs” must be covered.

    Now, if those benefiting from establishing or managing such credit facilities (the “equity” holders or “executives”) suffer losses, that will not necssarily “cover” the impact of the collapse, and the remainder will “ripple” out through the society.

    So, in effect, it is in the nature of the integrated system, by virtue of the way the benefits of that integration are “socialized” that the costs and losses from its impairments and deficiencies will be “socialized.”

    None of that is to imply that the mechanisms of government should determine either the allocation of benefits or losses.

  • Midwesterner

    Now, if those benefiting from establishing or managing such credit facilities (the “equity” holders or “executives”) suffer losses, that will not necssarily “cover” the impact of the collapse, and the remainder will “ripple” out through the society.

    With strict liability, bankers reckless with their depositors funds will find themselves living as garnishees next door to their former depositors in low income housing. I suspect both of their fates will reduce the moral hazard that is present when third parties pick up the tab. As you point out, the harm cannot be imagined away and must fall somewhere. Those “ripples” will wash up on some shore; let it be the shores of those who entered into the transactions freely by their own choice.

  • Mendicant

    Given that in the US, the banker welfare is in the region of $30 trillion, that money ain’t coming back. The taxpayer is bent over and royally raped. Hard.

    The real reason for the bailouts was not “economic collapse” or any of the hysterical, sensationalist bollocks spouted by the dilletantes.

    It was the case that if some of the banks fell, politicians would lose out on the cushy jobs they would be rewarded with if they served the banker’s like good little boys. This was what truly motivated them to ride to the rescue of the banks; the fear of losing out on that no work boardroom non-job at JP Morgan (Mr. Tony Blair springs to mind), Goldman Sachs, Deuchebanke, etc.

    Their careers were threatened, and thus they bent the taxpayer over and spread those cheeks to take the raping in order to secure their dilletante lfestyles.
    Economists, themselves work-shy dilletantes, eagerly supported this.

    The truth is, bankers are, like politicians, “middle men”, fat-arsed bureaucrats, and middle men are always expendable in the real world.

    Politicians and bankers, the most unproductive and pointless human beings on Earth, currently wield all the power.

  • RRS

    Mendicant.

    Do you want to understand or simply to “judge?”

  • RRS

    The economic systems, and the facilities of those systems evolve (tho’ not in the smae periodization) as the social orders in which they appear.

    The facilities which comprise the integrated economic system of our “Western” social order, were formed as responses to the needs and aspirations of that order as it evolved; and thus by the same factors that have generated what we regard as the “advance” of our civilization.

    As the advance of “Medicine” has required scientists and those who as Physicians practice the arts of applying those sciences, our “Economies” have required persons and groups for comparable (tho’ different) services.
    Our Social order has “advanced” because of the exchanges of services of all kinds.

    We have had, and continue to gain the benefits of those facilities and services, all on a “social” scale. We must recognize that the defects and failures of those facilities and services will by nature fall on us in that same “social” scale.

    Our integrated financial systems are what they are because, on balance, their facilities, as they evolve, provide enormous beneifits that ripple through the entire social order.

    Bankers, Politicians, Lawyers, Distibutors, etc., etc. are what we make them by reason of our needs, or by our own deficiences.