D^3

(dumping on Daniel Davies)

Excellent in parts. Well written as always. But with one incorrect and irrelevant aside.

Points (not in order)
1) On average bankers aren’t as bad as murders (I agree)
2) Not all bankers share any of the blame (I agree)
3) Many borrowers lost their heads as well as their houses (agreed).
4) You can bail out banks with deficit spending (I agree except for the detail that, in the USA, bailing out banks reduced the Federal debt).
5) No true Scotsman admits that there are Scottish bankers (I’m not an expert).
6) Even if property is not theft it should be evenly distributed (I passionately agree).
7) making good policy proposals depend on dubious claims of fact is unwise (I very passionately agree).
8) Bankers do not bear a very large share of the blame for the recession (huhhh wahhhhh ? how can anyone think that. Also what does that have to do with the rest of the post).

Brad DeLong makes a much better argument than the one that came to my mind (see below). His point is that no one made bankers keep mortgage based garbage on their books. Faith in the financial system collapsed when bankers and others discovered that some bankers had done so counter to all sound principles of banking such as originate and distribute, find a greater fool, first you pillage then you burn.

Sure other bankers did all the right things (and neither pillaged nor burned). But if you don’t know who blew over 100% of their equity betting on a bubble, it doesn’t do you any good to know that some bankers didn’t.

This was far far away (Lehman, Bear Sterns) or long long ago (AIGFP which isn’t even a bank) but it happened and many people are paying the price.

My weaker point is that, in the unfortunate paragraph about what happened which mars your nice post on people being mean to you and sound egalitarian political strategy, you assume that house prices are exogenous. A housing bubble just happened for some reason.

Look over the Atlantic again. There was no similar bubble during the 20th century. People will chase trends and inflate bubbles and all that, but something changed sometime around Y2K. I think that banking and finance generally changed. Option ARMS and a housing bubble acting together did not cause Countrywide to abandon all lending standards. They did that because investment banks were willing to buy and package all the garbage mortgages they initiated. OK the blame is shared by rechless homebuyers, non-bank mortgage companies, ratings agencies, AIGFP and some smart hedge fund managers who made money with legal but socially costly tricks (Magnetar). But there have always been reckless homebuyers and they never managed to bring down the US economy. Those of us who aren’t bankers refer to the rest of the lot as “bankers”

Note “the lot” not “you lot” IIRC you were one of the first to warn of the danger back when you worked at the bank of England before you went over to the dark side private sector, where I’m sure you did just as good a job but couldn’t publish your insights.