Martin Wolf of the Financial Times has an excellent blog post pointing out how wrong Germany and Co. are about how government profligacy and the welfare state are at the heart of the euro crisis. Certainly those are a big factor in Greece, but Spain’s government was a model of financial rectitude before the financial crisis began when it was running budget surpluses.
Wolf asks “What was Spain supposed to have done?”
In retrospect, the only way the Spanish authorities could have prepared themselves for the shock would have been to run fiscal surpluses of 10 per cent of GDP over the five or six years before the crisis, so generating a positive net asset position of at least 20 per cent of GDP. That might have been enough (though even that is uncertain). There is no chance whatsoever that a democracy would run such surpluses. Incidentally, Angela Merkel’s beloved fiscal compact would have unambiguously failed, since Spain was in fact thought to be running structural surpluses before the crisis, just as the compact demands…
Above all, how could Spain have prevented this crisis, which was unambiguously generated in the domestic private sector and fuelled by private sector capital inflows? If it could not have prevented the crisis, how can it bear some deep moral fault? Surely, a far more sensible - indeed moral - approach would be to recognise that this is more misfortune than misdeed and offer Spain the help it needs to adjust its economy to the post-crisis reality, without letting it either be pushed into sovereign bankruptcy or humiliated. Yet that is what is now threatened.
In my view, Spain made only one big mistake: joining the euro.
— Bloomberg’s Jonathan Weil rounds up some choice quotes from the British press on the egregious Libor scandal, which has already claimed half a billion dollars from Barclays, as well as its chairman, and will soon claim much more from other banks. Weil writes that “Hell hath no fury like a financial columnist scorned.”
Here’s Simon Jenkins in The Guardian:
“There seems no end to the immunity — moral, political, fiscal and possibly legal — claimed by the present masters of the universe, the bankers. … There must surely be a reckoning one day for loss and agony that the credit crunch has inflicted — and is still inflicting — on millions of innocent victims. But as we seek out the guilty men, we should know that as long as banking retains its stranglehold on policy, the disaster will continue.”
Yves Smith of Naked Capitalism notes that the British are much more worked up about this than we are (Barclays is British) and flags this Guardian quote:
Investment banking is an organised scam masquerading as a business. It is defined by endemic conflicts of interest, systemic amoral behaviour and extreme avarice. Many of its senior figures should be serving prison sentences or disgraced - and would have been if British regulators had been weaned off the doctrine of “light touch” regulation earlier and if the Serious Fraud Office’s budget had not been emasculated by Mr Osborne. It is a tax on wealth generation and an enemy of honest endeavour - the beast that is devouring British capitalism.
This scandal is coming to America soon enough, I’d bet, but it’s worth reading Smith’s thoughts on the American press.
— Listen to Audit Chief Dean Starkman talk to Richard Aedy of the Australian Broadcasting Corporation about how and why the business press failed in the years leading up to the global financial crisis
Or read the transcript:
Richard Aedy: Right. So why did this happen? Why wasn’t the real digging, the taking on the powerful institutions at the time when they were behaving most egregiously, why wasn’t that happening because that’s the stuff that people get into journalism to do, surely?
Dean Starkman: One would think and I’d say there are three reasons and two are not the press’s fault and one most certainly is. The first reason as I alluded to was the fact of deregulation; the Bush administration was not only an ineffective regulator, they were actively hostile to bank regulation. In fact they affirmatively fought state regulators who were trying to regulate abuses in the mortgage system. So the press was dealing with a very difficult environment. Journalism and regulation actually do go hand in hand and there’s a synergy that happens between regulators, effective regulation and uncompromised journalism, that can really police rogue industries. So that went away and that was a big problem.
The second piece of the puzzle, as you know working in the media business, this was not a good time for newspapers and for media in general. The great collapse, the unravelling of media had begun with the rise of the internet. There were for instance four rounds of layoffs at The Wall Street Journal during this period. You could say, well that didn’t necessarily materially affect the number of boots on the ground. But I can tell you as having been there, that it did play a role in the confidence of the business press, in the aggression of the business press, in their risk aversion which I felt was really the decisive factor.