It's frustrating to watch the same old culprits at the center of yet another economic crisis. Nobel economist Edmund Phelps believes that this time we don't bail out the banks or else they will never learn. The failure of Bush/Paulson and then Obama/Geithner to change the dynamics of the problem and let the bankers continue to live their lifestyle was a mistake. Phelps also dismisses the usefulness of Dodd-Frank. It's not a long interview so click through to get it all. Deutsche Welle:
But aren't the banks at the heart of this whole mess? We wouldn't be worried about Greece if the European banks had not overpurchased Greek debt. If the banks had been more prudent in buying all this sovereign debt the problem could have been solved a long time ago by just giving the bond holders a haircut. The whole trouble is that the bond holders are the banks or at least were until they were trying to divest themselves of bonds in recent weeks. To give a haircut to the banks might bring down the banking system. I think the political story here is there has been an alliance for mutual gain between the governments and the banks. In this alliance for mutual gain the banks would buy up immense quantities of sovereign debt instead of lending to small businesses for innovation. They were not required to hold any capital against such assets and pressure was no doubt put on the ratings agencies to give all this sovereign debt a triple AAA rating. And this was also great for the governments and lots of governments took advantage that they didn't have to pay as high interest rates as they would otherwise have to pay. And they began borrowing a great deal. I think this alliance between the banks and the governments lies at the heart of the eurozone crisis.This is exactly why the Occupy movement needs to step up the pressure on the political class since they are very much a part of the problem. This is not a left or right, Democrat or Republican problem but a political class problem. They're all addicted to the money from the financial industry and that includes the Obama campaign who is swimming in Wall Street cash.
