[Vision2020] The Prodigal Sons: Big Bankers and the Great Recession

[nickgier at roadrunner.com]

Happy Thanksgiving Visionaries!

This is my radio commentary/column for this week.  The full version is attached as a PDF file.

A related column "When Good Fisherman Become Bad Bankers" on Iceland can be found at www.roadrunner.com/~nickgier/Iceland.htm

Enjoy your friends and family, who are far more important than your bank account,

Nick


THE PRODIGAL SONS: BIG BANKERS AND THE GREAT RECESSION

The conservative Irish government finally admitted that it has a huge problem with its banks, and the European Union (EU) and the International Monetary Fund is prepared to bail them out at the tune of $140 billion.  It is now clear that poorly regulated banks were the main cause of the Great Recession.

Banks in Iceland, Greece, and the Baltic States—all led by right-center governments—have failed, but they also got into trouble in some countries led by left-center coalitions.  Social Democrats and Labor politicians in Spain and the UK were just as lax with regulation as their conservative counterparts. Spanish and Irish banks loaned freely and wildly for construction projects, which have now has left these workers high and dry after the bust.

For years free marketeers have praised the economic miracle of the "Celtic Tiger." Economic growth was indeed impressive: an average 6.4 percent from 1990-2007 with a peak of 9.5 percent in the late 1990s.  Workers, especially those from Eastern Europe, poured into Ireland for good paying jobs.

But in 2009 the big Irish party turned into a wake as the economy declined 7.5 percent, exceeded only by the Baltic States' Depression of 20 percent. The Irish budget deficit is now 32 percent of Gross Domestic Product, by far the EU's highest.  Britain is at 10 percent followed by Spain at 9.6 percent.  Greece has reduced its deficit to 7.9 percent, but the U.S. figure still stands at 9 percent. 

Anglo Irish, the largest bank, was nationalized after it was found to have cooked its books and made billions of euros in bad loans. An Irish TARP fund was set up to save the other banks,  and Finance Minister Brian Lenihan declared that at $45 billion it would be the “cheapest bailout in history and it would not cost the Irish taxpayer a penny.”  He was at least $100 billion short in his estimate, and the Irish are furious.

The Irish government has combined tax increases and spending cuts to reduce the budget deficit. New taxes total $20.5 billion and the equivalent tax increase for the U.S. would be $1.4 trillion dollars.  Britain’s new conservative government is also raising taxes—the national sales tax will go up to 20 percent and capital gains will increase to 28 percent—but will the GOP’s motto “No New Taxes” mean that the U.S. will never get its deficit under control?

All of this reminds me of the Parable of the Prodigal Son. The good sons are Canadians and the Israelis whose boring but well regulated banks are sound. A good son was also the first German bank to fail, a small state bank that did not realize the danger of the “sliced and diced” U.S. mortgage securities it had unwittingly purchased. 

In contrast to the father of the Prodigal Son, the paternal Congress, International Monetary Fund, and the European Central Bank did not bail out their profligate banks out of love and compassion; rather, they did it out of self-interest and the common welfare. Bush and Obama did not help banks and auto firms because they were socialists (adding Bush’s initiatives makes the charge even more ridiculous); rather, they consulted a wide range of economists and who said that it was the only way to save economy. 

The good sons and daughters of Europe very reluctantly have taken on the debt of their wayward brothers. Germany’s Prime Minister Angela Merkel is a Christian Democrat, but it was economic realism not love that moved her to support the Greeks and now the Irish. The economic ethics of the Gospel doesn’t appear to have much application to the current economic crisis.  

And Jesus wept, and he is still lamenting the fact that people put consumer durables far above their deep moral and spiritual needs.

Nick Gier taught religion and philosophy at the University of Idaho for 31 years.
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