2019年11月5日 星期二

Why didn’t the crisis chasten Wall Street?

Financiers are as arrogant and touchy as ever.
Erik McGregor/Pacific Press/LightRocket, via Getty Images
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By Paul Krugman

Opinion Columnist

Back in the summer of 2007 The Times published an article titled "The richest of the rich, proud of a new Gilded Age." The article opened with Sanford Weill, head of Citigroup, boasting of all that he and his billionaire counterparts had achieved.

By most accounts, the financial crisis that would soon engulf the whole world economy began a few weeks after that article was published. By late 2008 the financial sector, Citi very much included, was in meltdown; collapse was avoided only thanks to immense lending by the Federal Reserve and other official institutions. Citi, in particular, borrowed almost $100 billion from the Fed.

You might have thought that this experience would both have chastened Wall Street, making it a bit less arrogant, and also led to some reduction in the financial industry's political influence. But as I wrote in today's column, the tycoons of finance are not only unchastened, they're out there railing hysterically against any hint of criticism.

The thing is, even before the financial crisis, Wall Street's boasts about the great things it was accomplishing never made much sense.

During the great postwar boom — the generation after World War II, over whose course real wages and family incomes roughly doubled — finance was a relatively small part of the economy, around 2 to 3 percent of G.D.P. Nor was it especially lucrative: Average earnings in finance were only a bit higher than those in the rest of the economy.

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Money managers only began to emerge as Masters of the Universe, in Tom Wolfe's satirical phrase, around 1980; the turn probably reflected a combination of deregulation and the proliferation of "shadow banking," financial arrangements that did an end run around the prudential regulations that still existed. By 2007 both the financial industry and the amount of credit outstanding had more than doubled relative to the size of the economy.

But what did this "financialization" of the economy achieve? Economic growth didn't accelerate; even before the 2008 crisis it was slower, not faster, than it had been during previous decades. Wages of ordinary workers and the incomes of typical families entered an era of slow growth or stagnation. Household debt did, however, soar, because that — not business investment — was where most of the credit growth went.

As I mentioned in my column, the disappointments of U.S. financialization weren't unique. Growth in the banking system can be very valuable to poor countries, but once it gets beyond a certain point, research from places like the Bank for International Settlements — a very staid institution of bankers' bankers — suggests that it becomes counterproductive.

The main — perhaps the only — beneficiaries of hyper-financialization seem to have been a small group of very wealthy individuals, who kept their wealth only thanks to huge public bailouts in the crisis. So it's kind of amazing to see some of those people lecturing us about how much good they do, and the evils of big government.

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Quick Hits

In my column I mentioned Cliff Asness, who declared the term "revenue-maximizing" "disgustingly immoral." Some readers may recall a story involving Asness, Paul Ryan and some expensive bottles of wine.

Here's a brief history of economists' estimates of that revenue-maximizing rate.

Money managers pay a lot less than any of these estimates, thanks in part to some major tax loopholes. When Barack Obama proposed closing one of these loopholes, Steve Schwarzman compared it to Hitler's invasion of Poland.

Shadow banking is making a comeback. Be afraid.

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If you're enjoying what you're reading, please consider recommending it to friends. They can sign up here. If you want to share your thoughts on an item in this week's newsletter or on the newsletter in general, please email me at krugman-newsletter@nytimes.com.

Facing the Music

Two bands stuck in the middleYouTube

Two bands I like — Larkin Poe and Reina del Cid — covering the same standard.

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