Bankers are not exactly popular these days. The global economy is only just recovering from the financial crisis of 2007-8, and citizens (understandably) greatly resent having had to bail out the banking sector with public money. Even more than that, they resent immediately afterwards having had to endure a long period of austerity and public sector budget cuts.
In the wake of the Brexit, some economists warn we are now heading for another European banking crisis. Deutsche Bank’s chief economist recently urged the EU to put aside 150 billion euros for a new round of bailouts. In particular, market pressure has been building on Italy to offer assistance to its banks (leading to grumbling from the German finance minister).
It’s safe to say that public trust in the global financial system is pretty low. We had a comment sent in from Nikolai, who didn’t think there was much that could be done about it. He argues that the 2008 financial crisis, and subsequent public bailout of the banking sector, has irrevocably damaged public trust. To him, it feels like the financial sector works for the elites, while hurting ordinary people.
To get a response, we spoke to Joris Luyendijk, a Dutch writer and correspondent, who is well-known for the Banking Blog he kept on website of The Guardian newspaper. What would he say to Nikolai?
Well, I would say it’s a really good thing that trust has collapsed, because there really is no reason for trust in the current financial system because bankers are still rewarded for taking risks but they face no penalties or liability when these risks go wrong. So, I think to rebuild trust would mean to rebuild the financial sector in such a way that it begins to act responsibly, and then trust will appear magically – after a couple of years of decent behaviour on the part of the banks.
We also had a comment sent in from Catalin, who pointed out that Iceland was the only nation in the world that sent its top financial executives to jail. She believes that other countries should have followed their example (and this was a very popular suggestion among our readers). What would Joris Luyendijk say?
It’s very difficult, because most of the top bankers didn’t break the law. So, to send people to jail simply because the outcome of their actions was so negative would be a really dangerous precedent. I think what we should have done is: Where bankers broke the law, send people to jail, as in Iceland. But, more importantly, top bankers should be held personally liable. So, if they cause damage to the tune of, say, 10 billion euros, then they should be fined collectively 10 billion euros, so that they know that if they wreck their bank, nobody will pay a higher price than the bankers themselves.
Finally, we had a comment sent in from Rui, who argued that the global financial architecture designed in the late 1970s and early 1980s had completely failed, and needed to be redesigned from the ground-up. Did Joris Luyendijk agree? Or would he advocate more moderate reforms?
I would think that you need on the deepest level a fundamental redesign, and it needs to start with the science of economics. So, right now, if you increase productivity in an economy – meaning you create more so the pie is bigger – we call it “Growth”. But if you create lots of money out of thin air and you pump it into assets, you create bubbles, and then people start spending on consumption on the basis of that bubble, that is also called “Growth”. And so both making the pie bigger and eating the pie faster comes under the same concept: “Growth”. And I think that’s where we need a really big rethink and change. So, “Growth” should only mean the increase in the actual productivity of an economy.
What will it take to restore faith in the global economic system? Should more countries have followed Iceland’s example, and sent their top bank executive to jail? Or should the management of collapsed banks have been made financially liable for the damage to the economy? Let us know your thoughts and comments in the form below, and we’ll take them to policymakers and experts for their reactions!