Bankers lay down the law at Davos
(WSWS.org) -- by Nick Beams --
In 2009 they were conspicuous by their absence. The following year they were still keeping their heads down. But at this year’s just concluded annual World Economic Forum meeting held in Davos, Switzerland, it was a different story.
Two years after the eruption of the global financial crisis, having been bailed out to the tune of hundreds of billions of dollars, their bonuses and salary packages restored, and having taken the measure of governments around the world, the bankers were not only back in force, they were laying down the law.
In a series of speeches at open sessions and in closed-door discussions, leading bank chiefs made clear they would not tolerate restrictions on their activities and that, notwithstanding the fact that their actions had triggered the deepest financial crisis since the Great Depression, they would continue exactly as before.
The tone was set early in the five-day meeting by Goldman Sachs president Gary Cohn. Criticising the imposition of new rules on traditional institutions, Cohn warned that the “unregulated sector will grow at an exponential rate”.
“What I most worry about is that in the next cycle, as the regulatory pendulum swings, we are going to have to use taxpayer money to bail out unregulated businesses that, unlike the banks in the last crisis, may not be able to repay them,” Cohn said.
But the so-called “unregulated sector”—comprising organisations such as hedge funds and special purpose vehicles—and the banks are not separate organisations. They are two sides of the same financial system. The “unregulated” organisations could not function for a day without the massive supply of credit from the banks.
Viewed in this context, Cohn’s “warning” was a rather thinly-veiled blackmail threat: give us what we demand or we will find another way to do what we want and set off another financial crisis.
The chief executive of Standard Chartered, Peter Sands, took a different tack, insisting that regulations could have no real impact. “The current regulatory debate,” he declared, “is a bit like discussing having better seat belts on planes. It’s hard to argue against, but when the plane crashes, it’s all a bit marginal.”
Not that Cohn and Sands and their fellow banking chiefs needed to worry about the impact of regulation. The meagre regulations put in place since 2008 have been almost completely diluted.
International regulations are embodied in the Basel III accords that have been set up over the past 18 months. However, as Liam Halligan, a columnist for the British Telegraph, noted, referring to the Basel rules: “[T]he actual document is so full of fudges and escape hatches that it amounts to very little. The only concrete policy—requiring banks to hold more capital against potential losses—doesn’t kick in until 2018. Other measures designed to prevent future crises … have been postponed, allowing banks to carry on pretty much as before. In truth, the Basel accord, amid dire warnings of lower lending and job losses, has been eviscerated by the all-powerful banking lobby.”
According to Halligan, backroom meetings at the Davos summit ensured that new Basel rules requiring regulators to impose higher capital requirements on “systemically important financial institutions” were heavily diluted and even “relatively minor regulatory changes that have been put in place since sub-prime are being gradually stripped away”.
Having begun with an attack on regulation, the banking executives stayed on the front foot throughout the summit, with executives from JP Morgan, Barclays, Credit Suisse and others calling a meeting of finance ministers and officials to demand that “bank bashing” cease. To reinforce the point, they insisted that “over-indebtedness of countries,” not just of banks, was responsible for the crisis.
The aggressive character of the bankers’ campaign came as something of a shock for the reform-minded critic Simon Johnson, former chief economist of the International Monetary Fund.
Interviewed from Davos, Johnson said: “I knew it was a parallel universe, and I wanted to observe it, but I’m just shocked by the temerity of these bankers. Not only are they showing no remorse, they’re saying, ‘Oh, all that regulation you’ve infused or tried slightly to push on us is irrelevant or bad or dangerous and damaging and you should let us have our bucks now.’ And the rest of the Davos elite seems to be buying into this. It’s quite extraordinary. And rather disturbing.”...MORE...LINK