KausFiles

Too Big to Bust?

Annals of corporatism, Part XXVII: It’s one thing if a bank is too big to fail, so the government has to save it if it’s in danger of going under. It’s another if the bank is too big to be brought to justice, so the government can’t even make it obey the laws while it goes about its immortal way. That seems to have been the case recently with HSBC.

Announcing the record fine at a press conference in New York, assistant attorney general Lanny Breuer said that despite HSBC”s “blatant failure” to implement anti-money laundering controls and its wilful flouting of US sanctions, the consequences of a criminal prosecution would have been dire.

Had the US authorities decided to press criminal charges, HSBC would almost certainly have lost its banking licence in the US, the future of the institution would have been under threat and the entire banking system would have been destabilised.

Is that also why the government isn’t seeking the “death penalty” against outlaw bank UBS?

I’m not one to argue it’s easy to avoid ”2B2F” businesses, given a) economies of scale and b) the realistic interconnections of a modern economy (e.g. the automotive supply chain that GM threatened to take down with it). But it’s a grim future if we inevitably not only get politicians preserving the corporate status quo (as in the GM case) but also if that status quo features regular lawlessness on the order of a 70s Hollywood thriller. …

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Allison Schrager suggests that “chained CPI”–altering the cost-of-living formula for entitlements–might make retired boomers a powerful lobby against  “expansionary monetary policy.” Why? Because the new formula would not as effectively protect them against inflation. The result could be a more explicit struggle between the pensioned old and the underemployed young during recessionary periods. Meanwhile, inflation would have a bigger payoff for the government, because it would more efficiently erode the value, not just of the national debt but of the current and future retirement benefits the government was obligated to pay. “Future policymakers may be tempted to increase inflation … ”

Those seem like two bad dynamics. Schrager thinks straightforward “reduction in nominal benefits would be better than smaller cost-of-living increases.” I know of one such reduction! Reduce benefits paid to the rich. Eans-may esting-tay.

 P.S.: Do conservatives really want to pass “chained CPI” if it will prolong the life of the Social Security and Medicare? They seem to be counting on the welfare state’s insolvency to force major reforms--but tinkering with the inflation index is a very minor reform that nevertheless postpones the confrontation with reality. Luckily for conservatives, “chained CPI” won’t cure the problem. But means-testing? Maybe there’s a reason Republicans haven’t really been pushing it: It could work. …

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New Klein Ranking: 1) Philip 2) Joe 3) Ezra

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