Banks, Governments against Economic principles

Shahab Sabahi

Energy and Environment for Development – Policy Analysis Research Group

The concept of fairness as one of economic principles requires firms and individuals pay for the consequences of their investments and decisions which they made. It suggests that banks and insurance companies, who have invested in risky toxic assets, should pay for the full direct costs of washing off their own created financial crisis and mess. Also they should pay to fix any financial damaged that imposed to innocent people. Contrary to this economic principle, governments bailed out banks who were proximate to bankruptcy and saved them. Is it the fairness definition in classical capitalism? Why did government not let troubled banks go down? Why did governments not bail out other troubled manufacturers and companies evenly same as they had treated banks? 

Now banks report benefits (BBC Oct 4^th 2011, Business report) while our societies are yet long way to struggle securing their jobs and managing their living expenses. So it is not quite clear what the banks’ sources of profit are and why their profitable investments have not created any jobs. The banks that survived and now generating profits claim that making them pay for the costs of those that failed is unfair. Perhaps they forgot their survivals owe the societies who are now in trouble.

If this is the fairness that defined by banks’ economists, one should reflect the legitimacy of economic principles OR rethink about the existence of flaws in classical capitalism.   

 

Since governments’ economic teams (at least it holds true for the US since the Reagan administration onward) are usually coming from the private banks or somehow are connected and have interests in the financial sectors, one should not surprise if governments who are supposed to protect the entire societies’ interests, do nothing  with regards to regulation in the financial sector. Even now banks generating profits, governments have not claimed returns to taxpayers’ money which had been lent to banks when they were in trouble. It is time to sound the bells that the old fashion capitalism thought decay occurs and the advent of the neocapitalism is just started