Publication: Finance without financiers
Full text at PDC
Advisors (or tutors)
Instituto Complutense de Estudios Internacionales (ICEI)
In response to the financial crisis of 2007 – 2009, governments in the United States, Europe and elsewhere have invested billions of dollars in financial institutions to prevent them from going bankrupt and from further disrupting the global economy. Despite these massive public bail-outs, a government and "elite" consensus has emerged that these nationalized or quasi-nationalized financial institutions should be privatized as soon as possible, and that, apart from modest changes in financial regulation, our economies should return to the status quo ante financial structure as soon as possible. In short, despite a massively disruptive economic crisis caused by financiers, our best option as a society is to return to a financial system run by these financiers. We disagree. As the crisis reveals, financier dominated finance has a number of crucial flaws: it creates major externalities that contribute to financial and real economic instability; it promotes short-term investment strategies; it contributes to inequality; and it undermines economic efficiency and the achievement of social goals in the real economy. We argue that a better strategy for achieving economic recovery, restructuring and widely shared, sustainable prosperity is to use public investments in the financial sector to build on the successful Post-World War II experiences of publicly oriented financial institutions in Europe and the US to create a stronger presence of "finance without financiers". We provide case studies of the positive and negative experiences with publicly owned and controlled financial institutions in the United States, France, Germany and Italy, and draw lessons for successfully creating more publicly oriented financial institutions moving forward. We emphasize local differences, policy space and "social management" of these financial institutions to ensure that publicly owned financial institutions is, at the same time, genuinely publicly oriented institutions that fit local conditions.
Amsden, Alice H. 2001. The Rise of “The Rest”; Challenges to the West from LateIndustrializing Economies. Oxford: Oxford University Press. Bloch, T., 2008, The Effects of Bank Mergers on Small Business Lending in Germany, Working Paper Series: Finance and Accounting, No. 193, Frankfurt, Germany: University of Frankfurt. Boyer Robert 2004, Théorie de le régulation, La Découverte coll. Repères, Paris, n° 395. Buch, C., and Doepke, J., 2008, Growth, volatility, and credit market imperfections, Journal of Economic Studies 35, No. 3: 263-77. Buiter, Willem. 2009. Good Bank/New Bank vs. Bad Bank: A Rare Example of a NoBrainer. February 8. www.voxeu.org ft.com/mavercon. Buiter, Willem. 2009. Good Bank vs. Bad Bank: Don't touch the Unsecured Creditors! Clobber the tax payer instead. Not." March 14. www.voxeu.org ft.com/mavercon. Butkiewicz, James. 2002. "Reconstruction Finance Corporation".EH.Net Encyclopedia, ed. Robert Whaples, July 19. http://eh.net/encyclopedia .... accessed, June 14, 2009. Calculated Risk. 2008. Krugman on the GSEs. July 14. www.calculatedriskblog.com. Capie, Forrest, Charles Goodhart, Stanley Fischer and Norbert Schnadt. 1994. The Future of Central Banking; The Tercentenary Symposium of the Bank of England. Cambridge: Cambridge University Press. Capie, Forrest, Charles Goodhart, Stanley Fischer and Norbert Schnadt. 1994. “The Development of Central Banking” in Capie, et. al., pp. 1-232. Capie, Forrest. 1999. “Banking in Europe in the 19th Century: the role of the central bank”, in Sylla, et. al., The State, the Financial System and Economic Modernization, pp. 118-133. CBO, 1996. Assessing the Public Costs and Benefits of Fannie Mae and Freddie Mac. Washington: DC. Congressional Oversight Panel (COP). 2009a. Special Report on Regulatory Reform. http://cop.senate.gov/documents/cop-012909-report-regulatoryreform.pdf. Congressional Oversight Panel (COP). 2009b. "Reviving Lending to Small Businesses and Families and the Impact of TALF". May Report. http://cop.senate.gov/documents/cop-050709-report.pdf. Crotty, James and Gerald Epstein. 2009. "Avoiding a Financial Meltdown", Challenge Magazine, January/February. D'Arista, Jane. 2009. "Rebuilding the Framework for Financial Regulation" EPI Briefing Paper #231, May 1. Deutsche Postbank. 2009, 2008 Group Annual Report. Frankfurt, Germany: Deustche Postbank AG. Deutscher Sparkassen- und Giroverband, 2008, Markets 2007 (Annual Report). Frankfurt, Germany: DSGV. Deutscher Sparkassen- und Giroverband, 2009a, History, Frankfurt, Germany: DSGV. Deutscher Sparkassen- und Giroverband, 2009b, Sparkassen, Frankfurt, Germany: DSGV. Deutscher Sparkassen- und Giroverband, 2009c, Aufgaben und Ziele, Frankfurt, Germany: DSGV. Deutscher Sparkassen- und Giroverband, 2009d, Savings banks generate profit of 1.3 billion euros despite financial crisis—1.1 billion euros paid in taxes (press release). Frankfurt, Germany: DSGV. Deutscher Sparkassen- und Giroverband, 2009e, Savings banks with high growth rates in 2008; More corporate loans in crisis-ridden year. Frankfurt, Germany: DSGV. Dymski, Gary A., Gerald Epstein and Robert Pollin, eds. 1993. Transforming the U.S. Financial System; Equity and Efficiency for the 21st Century. Washington: Economic Policy Institute. Dymski, Gary A. 1993. “How To Rebuild the U.S. Financial System: Level the Playing Field and Renew the social Contract” in Dymski, et. al., pp. 101 – 131. Eichengreen, Barry. 2007. The European Economy Since 1945. Princeton: Princeton University Press. Elliott, Douglas J. 2009a. "Bank Nationalization: What is it? Should We do it?" Brookings Institution Initiative on Business and Public Policy, February 26, 2009. Elliott, Douglas J. 2009b . "Bank Nationalization: A Survival Manual" Brookings Institution Initiative on Business and Public Policy, April 21, 2009. Epstein, Gerald. 2007. "Central Banks As Agents of Economic Development", in HaJoon Chang, ed. Institutional Change and Economic Development. United Nations University and Anthem Press. Epstein, Gerald, Ilene Grabel and Jomo, K.S. 2005. “Capital Management Techniques In Developing Countries,” in Gerald Epstein, ed. Capital Flight and Capital Controls in Developing Countries. Ferguson, Thomas and Robert Johnson. 2009a. "Too Big to Bail: "The Paulson Put", Presidential Politics, and the Global Financial Meltdown; Part I: From Shadow Financial System to Shadow Bailout", International Journal of Political Economy, Vol. 38, No. 1 (Spring 2009). Ferguson, Thomas and Robert Johnson. 2009b. "Too Big to Bail: "The Paulson Put", Presidential Politics, and the Global Financial Meltdown; Part II: Fatal Reversal – Single Payer and Back", International Journal of Political Economy, Vol. 38, No. 1 (Summer 2009). Government Accountability Office (GAO). 2008. Housing Government-Sponsored Enterprises: A Single Regulator Will Better Ensure Safety and Soundness and Mission Achievement. GAO Testimony, March 6, 2008. Gerschenkron, Alexander. 1962. Economic Backwardness in Historical Perspective. Cambridge, MA: Harvard University Press, Belknap Press. Gigot, Paul. 2008. “The Fannie Mae Gang”. Wall Street Journal. July 23. Grabel, Ilene. 2000. “Savings, Investment and Functional Efficiency: A Comparative Examination of National Financial Complexes”, in Pollin, ed. 2000, pp. 251-298. Grunbacher, A., The Early Years of a German Institution: The Kreditanstalt fur Wiederaufbau in the 1950s, Business History 43, No.4:68-86. Hakenes, H., Schmidt, R., and Xie, R., 2009, Regional Banks and Economic Development: Evidence from German Savings Banks, unpublished manuscript, Hanover, Germany: University of Hannover; Max Planck Institute for Research on Collective Goods. Harm, C., 1992, The Financing of Small Firms in Germany, World Bank Policy Research Working Paper Series No. 899, Washington, DC: World Bank. Hodgman, Donald R. 1973.“Credit Controls in Western Europe: An Evaluative Review”, in The Federal Reserve Bank of Boston, Credit Allocation Techniques and Monetary Policy. Boston: Federal Reserve Bank, pp. 137-161. Jonung, Lars. 2009. "The Swedish Model for Resolving the Banking Crisis of 1991 – 1993: Is it Useful Today?" March 14. www.voxeu.org. Knodell, Jane. 1994. "Financial Institutions and Contemporary Economic Performance", in Michael A. Bernstein and David E. Adler, eds. Understanding American Economic Decline, Cambridge: Cambridge University Press, pp. 114 – 160. Kreditanstalt fuer Wiederaufbau, 2008, KfW Bankengruppe- an introduction. Frankfurt, Germany: KfW. Krugman, Paul. 2008. Fannie, Freddie and You. New York Times, July 14, 2008. Krugman, Paul 2009. "Making Banking Boring". New York Times, April 9. Kuttner, Robert. "Financial Regulation After the Fall". Demos. www.demos.org. Landesbank Baden-Wuerttemberg, 2002, EU Agree Ending State Aid to Public Banks, Stuttgart, Germany: LBBW. Mishkin, Frederic. 2008. Economics of Money, Banking and Financial Markets.8th edition. Moseley, Fred. 2009. "Time for Permanent Nationalization of the Banks; If the Banks are Too Big to Fail, They Should be Public". Dollars and Sense Magazine, March/April, 2009. Moss, David and Cole Bolton. 2009. Fannie Mae: Public or Private? Harvard Business School Case. 9-709-025. February 10. Muolo, Paul and Mathew Padilla. 2008. Chain of Blame; How Wall Street Caused the Mortgage and Credit Crisis. New York: John Wiley & Sons. Partnoy, Frank. 2003. Infectious Greed; How Deceit and Risk Corrupted the Financial Markets. New York: Henry Holt and Company. Passmore, Wayne. 2005. “The GSE Implicit Subsidy and the Value of Government Ambiguity” Federal Reserve Board of Governors Finance and Discussion Papers, 2005 – 5. Pollin, Robert, 1993. “Public Credit Allocation Through the Federal Reserve: Why it is Needed; How it Should Be Done”. In Dymski, Epstein and Pollin, 1993, pp. 321 – 354. Pollin, Robert. 1995. Financial Structures and Egalitarian Economic Development". New Left Review. 214. November/December, 26 -61. Pollin, Robert, 2009. Tools for a new Economy: Proposals for a Financial Regulatory System. Boston Review. January/February. Schertler, A., Buch, C.M., von Westernhagen, N., 2006, Heterogeneity in Lending and Sectoral Growth: Evidence from German Bank-Level Data, International Economics and Economic Policy 3, No. 1:43-72. Shafer, Jack. 2008. “Fannie Mae and the Vast Bipartisan Conspiracy”, Slate, September 16. www.slate.com. Tett, Gillian, 2009. Fool’s Gold. London: Little, Brown. Thurow, Lester. 1972. "Proposals for Re-Channeling Funds to Meet Social Priorities" in Policies for a More Competitive Financial System" Conference Proceedings of the Federal Reserve Bank of Boston. Trade Union Advisory Committee To the Organization for Economic Cooperation and Development (TUAC), 2008. "Re-Regulation in Aftermath of the Global Financial Crisis", December http://www.tuac.org/en/public/edocs/00/00/03/91/document_doc.phtml. U.S. Congress, House of Representatives, 92nd Congress, 2nd Session. 1972. Foreign Experiences with Monetary Policies to Promote Economic and Social Priority Programs. U.S. Congress, Joint Economic Committee. 1981. Monetary Policy, Selective Credit Policy and Industrial Policy in France, Britain, West Germany and Sweden. Washington: Government Printing Office. Wolfson, Martin. 1993. “The Evolution of the Financial System and the Possibilities of Reform”, in Dymski, et. al. pp. 133-155. Zysman, John. 1983. Governments, Markets and Growth: Financial Systems and the Politics of Industrialization. Ithaca: Cornell University Press.