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Commentary :: Economy
Greed, the Corrupt System and Shadow Banking
A sudden change of thought patterns has occurred. For thirty years, the dogmas were in effect: trust in the self-healing powers of the market, the sleek state is the best of all states and economic policy will not be necessary if the central bank fights inflation.
GREED AND THE CORRUPT SYSTEM
Interview with Friedhelm Hengsbach
[This interview published in: Stuttgarter Zeitung, 12/19/2009 is translated from the German on the Internet, www.stuttgarter-zeitung.de/stz/page/2323473_0_8060_-interview-mit-friedhelm-hengsbach-ich-kann-gier-nicht-mehr-hoeren-.html.]
[How can the republic survive the crisis? What lessons are learned? How can a balance be found between morality and economic pressure? These are questions that haunt Germany’s most prominent social ethicist. The Jesuit and economist urges a stronger control of the financial markets. Society must redefine prosperity.]
Mr. Hengsbach, where do you invest your money?
I am a member of the Jesuit order obligated to poverty and do not have my own income. What I gain goes into a common pot that pays for old age subsistence.
What bank does your community trust?
The community invests money with different financial institutions and lost funds through the financial crisis. I have no direct influence on investment policy. We leave that to a Jesuit who consu9lts with advisors.
Stock prices rise; the economy is growing again. Is the crisis over?
That depends on who you ask. One part of financial enterprises has already found a niche for speculative businesses. There is much euphoria again.
Do you think the speculators are back?
Some banks have learned lessons but not all financial enterprises. Binding rules are announced but not put in effect. That is problematic. Not much has changed except for a few declarations of intent of the G20 to subject all financial products to public control. Efforts are made on the national and European planes but the global markets are not safeguarded against boundless awarding of credits and under-capitalization of financial firms.
Do you have great hope that this will change?
Commissions and experts are racking their brains about this. After the Asian crisis, a whole package of preventive measures was presented. When normality more or less returned, the measures were put back in the drawer.
How dramatic is the financial crisis?
The financial crisis is unparalleled for two reasons. Firstly, a sudden change of thought patterns occurred. For thirty years, the dogmas prevailed: trust the self-healing powers of the market, the sleek state is the best of all possible states and economic policy is not necessary any more if the central bank rigorously fights inflation. All these dogmas did not collapse overnight. Now the state is regarded as the deliverer. A thirty-year epoch of economic theory and policy has broken down. Secondly, there is a monetary crisis, an ecological crisis and a social crisis.
Were the causes human failure or structural errors?
A corrupt system caused the crisis, not the individual failure of greed. For diversion, scapegoats, greedy managers, are sought. One reason for the disaster is the grotesque distribution of income and assets. Excess money or liquidity existed that circulated on the financial markets and did not enter the real economy. Banks fueled the speculations through their power of unlimited credit creation. In addition, the balancing rules set false incentives and rating agencies gave unrealistic ratings.
Will the crisis be repeated?
Yes, the crisis will be repeated if the imperative lessons are not learned. Firstly, no financial business may exist any more outside public control. Secondly, the capital-holding requirements must differentiate whether real investments or speculative investments are made. Thirdly, we need a multilateral monetary system that creates more stability between the currencies.
Can politics master the crisis?
The new German government tries to cushion the social dimension of the crisis. When one reflects on the black-yellow coalition, one can only throw one’s hands up.
What is the anomaly?
The extreme liberal thinking of the FDP party acts as though there is no crisis. Look at the key words in their program. “Market” occurs 114 times, “competition” 91 times but “social justice” only three times. If that is a program for a government in the current situation, one can either be furious or say: paper is paper… Pursuing a policy that removes the excesses – including the liberal excesses – is vital.
Voters obviously see this differently.
Germany under Red-Green sought the reorganization of Germany Inc. in finance capitalism and intensified the crisis. Protection against unlawful termination was relaxed, the welfare state driven back and precarious working conditions like contract work and one-euro jobs were promoted.
Black-Yellow wants to lower taxes. Is that a correct step?
No. All economists say lowering taxes is counter-productive and irresponsible. Launching an economic upswing through tax cuts alone does not succeed as shown with Ronald Reagan and Maggie Thatcher. Tax cuts mean public budgets are impoverished and a few private persons enriched.
RELATED LINK:
“Trillions Down the Drain”
Of tax havens and shadow banks
By Axel Troost and Nicola Liebert
(15 pages pdf file; Blatter fur deutsche und internationale Politik 3/2009)
“Plenty of quite sensible suggestions are now circulating about what triggered
the worst financial crisis since 1929 and what will have to be done to avoid
future crises. They include improved regulation of rating agencies, an
approval procedure for new financial products (‘financial MOT’) and the
banning of off-balance-sheet special purpose companies.
At the same time, in what is apparently a completely unconnected move, the
German Federal Government has started to look for better ways of combating
tax avoidance in tax havens such as Switzerland and Liechtenstein, as well as
Panama and Singapore. In this respect, it has remained largely unremarked
that the inadequate regulation of actors on the financial markets and tax
avoidance are two sides of the same coin: for both presuppose the existence
of tax havens that, apart from low taxes, offer an environment where, to a
large extent, regulators deliberately refrain from intervening. ‘The
development of the current credit crisis in the financial sector would have
been impossible without offshore centres,’ as the non-governmental
organisation (NGO) Tax Justice Network put it in a statement for a hearing of
the Treasury Committee of the lower house of the British parliament…”
To read the 15 page pdf article published in: Blatter fur deutsche und internationale Politik 3/2009, click on
www.taxjustice.net/cms/upload/pdf/Troost-Liebert_tax_havensfinancial_crisis.pdf
Interview with Friedhelm Hengsbach
[This interview published in: Stuttgarter Zeitung, 12/19/2009 is translated from the German on the Internet, www.stuttgarter-zeitung.de/stz/page/2323473_0_8060_-interview-mit-friedhelm-hengsbach-ich-kann-gier-nicht-mehr-hoeren-.html.]
[How can the republic survive the crisis? What lessons are learned? How can a balance be found between morality and economic pressure? These are questions that haunt Germany’s most prominent social ethicist. The Jesuit and economist urges a stronger control of the financial markets. Society must redefine prosperity.]
Mr. Hengsbach, where do you invest your money?
I am a member of the Jesuit order obligated to poverty and do not have my own income. What I gain goes into a common pot that pays for old age subsistence.
What bank does your community trust?
The community invests money with different financial institutions and lost funds through the financial crisis. I have no direct influence on investment policy. We leave that to a Jesuit who consu9lts with advisors.
Stock prices rise; the economy is growing again. Is the crisis over?
That depends on who you ask. One part of financial enterprises has already found a niche for speculative businesses. There is much euphoria again.
Do you think the speculators are back?
Some banks have learned lessons but not all financial enterprises. Binding rules are announced but not put in effect. That is problematic. Not much has changed except for a few declarations of intent of the G20 to subject all financial products to public control. Efforts are made on the national and European planes but the global markets are not safeguarded against boundless awarding of credits and under-capitalization of financial firms.
Do you have great hope that this will change?
Commissions and experts are racking their brains about this. After the Asian crisis, a whole package of preventive measures was presented. When normality more or less returned, the measures were put back in the drawer.
How dramatic is the financial crisis?
The financial crisis is unparalleled for two reasons. Firstly, a sudden change of thought patterns occurred. For thirty years, the dogmas prevailed: trust the self-healing powers of the market, the sleek state is the best of all possible states and economic policy is not necessary any more if the central bank rigorously fights inflation. All these dogmas did not collapse overnight. Now the state is regarded as the deliverer. A thirty-year epoch of economic theory and policy has broken down. Secondly, there is a monetary crisis, an ecological crisis and a social crisis.
Were the causes human failure or structural errors?
A corrupt system caused the crisis, not the individual failure of greed. For diversion, scapegoats, greedy managers, are sought. One reason for the disaster is the grotesque distribution of income and assets. Excess money or liquidity existed that circulated on the financial markets and did not enter the real economy. Banks fueled the speculations through their power of unlimited credit creation. In addition, the balancing rules set false incentives and rating agencies gave unrealistic ratings.
Will the crisis be repeated?
Yes, the crisis will be repeated if the imperative lessons are not learned. Firstly, no financial business may exist any more outside public control. Secondly, the capital-holding requirements must differentiate whether real investments or speculative investments are made. Thirdly, we need a multilateral monetary system that creates more stability between the currencies.
Can politics master the crisis?
The new German government tries to cushion the social dimension of the crisis. When one reflects on the black-yellow coalition, one can only throw one’s hands up.
What is the anomaly?
The extreme liberal thinking of the FDP party acts as though there is no crisis. Look at the key words in their program. “Market” occurs 114 times, “competition” 91 times but “social justice” only three times. If that is a program for a government in the current situation, one can either be furious or say: paper is paper… Pursuing a policy that removes the excesses – including the liberal excesses – is vital.
Voters obviously see this differently.
Germany under Red-Green sought the reorganization of Germany Inc. in finance capitalism and intensified the crisis. Protection against unlawful termination was relaxed, the welfare state driven back and precarious working conditions like contract work and one-euro jobs were promoted.
Black-Yellow wants to lower taxes. Is that a correct step?
No. All economists say lowering taxes is counter-productive and irresponsible. Launching an economic upswing through tax cuts alone does not succeed as shown with Ronald Reagan and Maggie Thatcher. Tax cuts mean public budgets are impoverished and a few private persons enriched.
RELATED LINK:
“Trillions Down the Drain”
Of tax havens and shadow banks
By Axel Troost and Nicola Liebert
(15 pages pdf file; Blatter fur deutsche und internationale Politik 3/2009)
“Plenty of quite sensible suggestions are now circulating about what triggered
the worst financial crisis since 1929 and what will have to be done to avoid
future crises. They include improved regulation of rating agencies, an
approval procedure for new financial products (‘financial MOT’) and the
banning of off-balance-sheet special purpose companies.
At the same time, in what is apparently a completely unconnected move, the
German Federal Government has started to look for better ways of combating
tax avoidance in tax havens such as Switzerland and Liechtenstein, as well as
Panama and Singapore. In this respect, it has remained largely unremarked
that the inadequate regulation of actors on the financial markets and tax
avoidance are two sides of the same coin: for both presuppose the existence
of tax havens that, apart from low taxes, offer an environment where, to a
large extent, regulators deliberately refrain from intervening. ‘The
development of the current credit crisis in the financial sector would have
been impossible without offshore centres,’ as the non-governmental
organisation (NGO) Tax Justice Network put it in a statement for a hearing of
the Treasury Committee of the lower house of the British parliament…”
To read the 15 page pdf article published in: Blatter fur deutsche und internationale Politik 3/2009, click on
www.taxjustice.net/cms/upload/pdf/Troost-Liebert_tax_havensfinancial_crisis.pdf
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