Simon Johnson, blogger and the former chief economist at the International Monetary Fund, wonders why we don't have the political will to deal more aggressively with our banking problems:
This resentment against bankers pervades Congress, and even the Administration begins to get the message - being called “asinine” yesterday by Richard Kovacevich, the Chairman of Wells Fargo, may have helped underline to Treasury how deeply the bankers appreciate the help they have received. There can be no resolution and no moving on until there has been a proper congressional investigation, with full subpoena powers, into exactly what did and did not happen around AIG. This will take months and may well slow down the economy (Jamie Dimon’s clever point: if you vilify us, you will lose), but it is now inescapable. And, if channeled productively, this kind of hearing may lead to a better regulatory system (and smaller big banks) than the current anemic proposals on the table - as last weekend indicated, the G20 process is currently worse than useless on this issue.
Ben Bernanke knows all this, at the same time as he sees our economy worsening and global storm clouds still gathering. So where will he take us, starting with the Federal Open Market Committee meeting this week? The British experiment with quantitative easing is pushing down the yield on long government debt. It’s risky - inflation, once started, is not so easy to control. And it may not work so well in the US (where the dollar tends to appreciate as the world becomes more scary) as in the UK (where they can successfully push for depreciation, particularly vis-a-vis the hidebound eurozone).
Inflation breaks the political and social logjam around banking. With some luck, it helps growth - at least in the short-term. And of course the surviving bankers win big.
Me: All the more reason to let a tweaked M2M rules and an upward sloping yield curve do the heavy lifting from here on out.
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