I’m coming over rather Dean Baker today. For it is he who has been pointing out that no, the great crash did not come about because of “toxic derivatives”. And in the UK it was not a result of the mixing of investment and retail banking. Nor even was it too big to fail banks. As Spain is showing us right now:
The need for intervention comes four years after the UK was bailing out its banks, laden with toxic sub-prime debt. At the time Spaniards were told they had the world’s best central bank – one that had banned Spanish banks from buying dubious US mortgage derivatives.
But the scramble to rescue Bankia has shed light on Spain’s own version of toxic debt – the vast amount of money loaned to builders, developers and land speculators during a decade-long property boom.
Spain didn’t have any of those derivatives. And the big three commercial banks are just fine. It’s actually the regional, formerly mutually owned, cajas that are in the shit. You know, the ones run as not for profits by hte local politicians taking the very real needs of local industry and society into account?
Now, did the derivatives, the too big to fail etc, have any effect at all? Sure they did, but they didn’t cause either the crash or the subsequent recession. The pricking of a property bubble did. As we can see because we’ve got the same thing, the pricking of a property bubble, causing the same problems, the evisceration of the banking system and recession, without the derivatives, the too big to fail or the investment banking bit.
Which, of course, means that all those screaming about investment banking, derivatives etc, are simply wrong. They weren’t the cause of the problem and banning them won’t stop it in the future.
Oh, and local, regional, mutual banks run by local politicians with a very real democratic interest in the local economy and industry: they don’t seem to be an answer either.