I recently heard Thomas Ferguson discuss his work in political economy with Chris Hayes. He mentioned this paper, which does a pretty remarkable job summarizing what’s happened in finance since the bailout:
[Banks have successfully lobbied] for free or low cost money: the euphemism is the need to “get a new balance sheet into the game.” . . . Along with bank creditors, which in the U.S. include giant bond funds like Pimco and BlackRock, bankers also form a phalanx against making bank creditors share any costs of bailouts by converting debt into equity – which, of course, is exactly what states concerned about their taxpayers should do.
Financiers also hate the idea – important for reasons of moral hazard – of losing their jobs, or limits on their salaries and bonuses[, or clawbacks]. Not surprisingly, wolves are artful specialists in crying wolf: Moves by states to make banks pay the costs of cleaning up are greeted by what we like to call the “immaculate deception”: that such steps amount to “socialism” and will choke off recovery and drive “talent” out of the banks.
Where bad banks or other schemes for warehousing assets are set up, the price at which those assets are eventually resold often generates another mare’s nest of problems. And finally, there is the issue, widely overlooked in the literature, of how impaired banks treat customers. In the current U.S. case and, we suspect, many others, “zombie” banks gouge clients by raising fees and other charges. More generally, in a financial equivalent of the Night of the Living Dead, they try to raise margins everywhere they can. All too often, they can almost everywhere, thanks to the waves of consolidation that financial crises bring in their wake.