It has also happened in other crises that the banks are considered the (main) responsible for the chaos, both capable of causing it and unable to get out of it. Other times, however, they have been asked or forced to take a step back: restructuring, strict regulation, nationalisation. Today the watchword is: "recapitalize yourselves". Two simple questions: "Why?" and how much?"
Maffeo Pantaleoni, referring especially to securities and land credit institutions with very high credit and financial risks and easily subject to instability, believed that to avoid bankruptcy «the guarantee should not be sought in the share capital of the institution, but rather in the use of capital", that is, "in the type of investment into which it is transformed". Luigi Einaudi for his part reiterated that the soundness of a bank is not ensured by any relationship between "capital and reserves on the one hand and savings deposits on the other"; a bank fails – he continued – because «the managers mismanaged small capital and large deposits; and they would equally have mismanaged large capital and scarce deposits». It seems certain that the two leading Italian economists would have expressed skepticism towards any Basel "round" and other such things in vogue today.
One thing seems certain: the banks are embroiled and trapped in the crisis. The inconvenience of too big to fail keeps them afloat, even if many deserve to be investigated. So everything is done to make them increase their capital and become even bigger. But even so, shareholders will never pay for failing to police bad managers.
A kind of enchantment makes everything go round. Everyone is looking for golden rules. For banks, that of assets applies. The one for governments seems to be made especially for banks because if governments bail out banks, they still have to do it with balanced budgets. It is a simple rule of austerity. Who rewards? Certainly the banks that have been swimming in a sea of liquidity for at least two decades. They can use it by betting on governments that manage to follow the golden rule that they have given themselves by mutual agreement. Getting it wrong is hard: it's about speculating with confidence against those who don't comply. What's the result? Governments are offering banks attractive opportunities by drawing on large cheap liquid assets to play the new game, now that the real estate lending game has ended since 2007. The game changes but the rules are always the same.
At the time of Pantaleoni and Einaudi there was a shared opinion that, at least in "normal" times, it was necessary to keep banks short of liquidity to make them prudent in their investment choices. Excess liquidity on the markets therefore had to be dried up as soon as possible to prevent the fever of speculation and a strong distortion in investments from spreading through the banks.
In reality, this sort of enchantment in which the self-regulated market ideology immerses everyone allows the banks to continue the party. In convulsions they do not purge balance sheets of toxic assets and if they grow capital and reserves they manage to do so because they harvest on the austerity of governments that struggle to meet it. In other words, banks are able to get out of the crisis if they can continue to maintain loans that are bad for the community but profitable for them (and a few others). Financial boon allows fair profits at the expense of state austerity. The latter lasts as long as the banks are no longer too big to fail. We start all over again for a "hidden curse" that obscures this game of roles.
