According to Nobel Prize- winning economist Joseph Stiglitz, the problems connected to the banking and financial industry are now worse than they were before the U.S. government intervened to prop up the poorly run banks.
In an interview in Paris, Stiglitz said, “In the U.S. and many other countries, the too-big-to-fail banks have become even bigger. The problems are worse than they were in 2007 before the crisis.”
Of course a chorus of detractors immediately responded to Stiglitz, with some wondering in interviews why is saying what he’s saying. Of course the reason is because in this case what he’s saying is right, and the banking industry isn’t anywhere near on its way to recovery as others are asserting, with much of the pain still ahead with Alt-A and commercial loans yet to be a significant part of the overall economic crisis equation on an experiential level.
Stiglitz is one of the few economists that asks one of the most obvious question concerning the idea that the economy in general is recovering, querying about the U.S. “if workers do not have income, it’s very hard to see how the U.S. will generate the demand that the world economy needs.”
Most of the media just throw that idea out as unimportant and repeat the U.S. governments’ assertion we’ve now entered a time of economic recovery. Only the politicizing of statistics could allow that type of thought to be offered up as serious without there being a lot of laughter in the background.
While Stiglitz is correct about his conclusion that the banking industry is in worse shape than it was before the economic crisis, he is blinded by his assumption that government should play a role in the industry.
What Stiglitz is saying isn’t whether the banking industry is temporarily better than it was when Lehman Brothers collapsed, what he’s saying is the bailout has created something worse than before, i.e. gigantic banks that were considered to big to fail then, and which are now even more so. That’s the point he’s making, and which I agree with. This is why he says it’s worse than before. Anybody can throw hundreds of billions of someone else’s money at a problem and prop a bank up regardless of their performance, but the result creates something much worse: and industry that now knows it will never be allowed to fail, and so in reality controls those who are feeding it money because of that.
Unfortunately Stiglitz says nothing about why this was able to happen, which was the practices of the Federal Reserve; which is why it should be ended. But at least he’s one of the few more well known economists who admit the economy isn’t truly close to recovery, if it’s in a recovery at all, and that the banking system is now worse than it was before the bailouts, at least in reference to creating gigantic banks that will be able to operate with impunity going forward. What happens when they fail the next time? Where will the money come from then, and what will be the consequences?
Stiglitz understands the problems being faced, but he doesn’t give the right answer in that we should have allowed these banks to fail and the Federal Reserve ushered out of existence. Only that could keep these things from happening again.
