The extensive writing by Alessandro Pansa on FIRSTonline of 14 January deserves a detailed comment. Some points of the reasoning appear incontrovertible:
1) There is a risk of over regulation, especially as regards the capital ratios of banks. To avoid the next banking crisis, the current crisis is being prolonged, making it more difficult for banks to provide credit to businesses.
2) The international banking system is too concentrated and a few very large intermediaries have too much power. This is the result of the crisis, certainly not of the liberalization of the previous decades, because almost all banking crises have been resolved with mergers. It's not easy to go back now, but it shouldn't be impossible.
On many other, more fundamental issues, the discussion is open.
1. It is doubtful that the liberalization processes that have taken hold since the 80s are the result of the financial industry lobby. On the contrary, like all liberalization processes, they have been implemented by governments with the aim of increasing competition and have generally been carried out against the will of the subjects concerned. The Clinton administration's repeal of the Glass-Steagall Act was done to remove the investment banking monopoly from investment banks. Restrictions on interstate banking were lifted because they represented an anachronistic defense of bank rent.
In Europe, the Second Banking Directive removed the barriers that protected banks in each country from competition from other European banks. Italian bankers, like those of many other countries, were not at all happy with an innovation that was making a qualitative leap in the degree of competition across the continent. Here, that directive laid the foundations for eliminating the curious and no longer sustainable privilege of Mediobanca, the only bank which for decades had been allowed to take stakes in companies.
2. As a former official of the Bank of Italy, I would like to state that it is not true that "the lesson (of the instability of an unregulated system) was not memorized". That lesson was very clear and in fact, neither in Italy nor elsewhere has there been a thought of eliminating the special regulation of the banking industry. Since the XNUMXs, finance and financial control have gone hand in hand. What has been attempted since the XNUMXs is to combine the control system with competition. This was the mission to which Governor Ciampi dedicated himself, with authentic civil passion (far from financial lobbies!) and which, amid ups and downs, found the consent of governments and parliament.
Moreover, thinking back to what the banking system was like in the early eighties, it is very difficult to feel nostalgia for what was later called the petrified forest, i.e. a system in which there was a ban on setting up new banks, in which competition was limited according to the branch plan drawn up by the Bank of Italy, credit was regulated through instruments such as the ceiling on loans, the portfolio restriction, the provisions on the subject of the banks' Pne as well as by the controls on the flows of private capital to and from abroad.
It is also difficult to regret the system of ICS and double intermediation, in which the commercial banker who knew the company and the medium-term institution who knew the projects did not typically meet. All in all, this was an expensive and dysfunctional system that ensured a peaceful life for the banks, but it was utterly indefensible.
3. It may sound attractive, but the idea that financial markets are unstable and “have also made market economies, dominated by the financial superstructure built upon them, unstable” is not supported by the facts. Charles Kindelberger documented the many crises that occurred long before there were financial markets: the rushes for gold and other precious metals or tulips in 17th century Holland, followed by crises. The crisis of 1929 itself, in its initial phase, had little to do with finance: investors believed in industry - not in finance - and bought its shares, until their value rose to levels that were disconnected from fundamental.
Very serious financial crises occurred well before the liberalizations of the 1982s. We recall the crises of the Gold Standard (which led to its abandonment), the crisis of the Bretton Woods system (which was also abandoned), the many crises of the countries of Latin America, starting with the very severe one in Mexico in XNUMX, the Savings and Loans crisis in the USA etc. This does not mean – it is worth repeating – that the financial markets must be regulated. The idea that they weren't before the crisis is a polemical puppet. Another thing is to say that the crisis has revealed that there were glaring holes in the regulation, for example, with reference to the “Originate and Distribute” model of sub prime mortgages.
4. No one has ever thought (not even Friedman or his disciples) that it made sense to oppose the logic of the markets to that of democracy. Political decisions must be made by governments. There is nothing more to add to this. No one ever thought it desirable to shift shares of power from governments to financial markets. There is no “globalization orthodoxy” that thinks such a process is desirable.
Nor is there any economic theory that thinks that financial markets lead to "reabsorb social imbalances". As everyone knows, the most orthodox theory says that markets lead to an efficient allocation of resources, but certainly not to a fair allocation. In any case, if someone thinks that the existence of more or less efficient markets can exempt us from making ethical judgments, this someone is way off the mark with respect to common sense, but also with respect to more orthodox economic theory.
5. In the light of a careful historical analysis, it is very difficult to agree with the affirmation, which has become almost commonplace, according to which the development of financial markets has reduced the power of governments and is therefore in contrast with democracy. The point is that governments have always been conditioned by the behavior of the savers they turn to to finance their own debt or that of the nation.
In the "wonderful" world of Bretton Woods, which many seem to long for, there were capital controls, yet the pound was forced to devalue many times and British governments were forced to explain why new sacrifices were continually needed. In Italy, all the massive building built in the seventies to defend the lira and the Italian banks could not prevent capital outflows, even impetuous, such as the one that forced the Italian authorities to close the foreign exchange market in January 1976. Capital outflows they took place through leads and lags on payments of commercial flows, under- and over-invoicing, illegal operations.
The point is that even in the golden age of capital controls, well before any liberalization, when financial markets were still very small and banks were hyper-regulated, savers found ways to put their money safe if they thought governments were untrustworthy. So much so that the Italian governments lived for almost ten years under the nightmare of Guido Carli's famous letter of intent with the International Monetary Fund.
Similar events were experienced in all major countries: think of how Mitterand's policies changed in the early eighties following the reactions of the markets. Even a country like the United States failed to prevent the development of a huge European market in dollars, the sole purpose of which was to allow the evasion of the reserve requirements imposed on banks resident in the United States.
6. Experience does not seem to offer support to another affirmation which has by now become commonplace, that according to which finance increases inequalities between countries "because of the tendency to ask less solid countries for rigorous policies which often become recessive". The most obvious case here is that of Greece. Since the crisis erupted in 2010, international institutions (i.e. taxpayers from other countries) have replaced the markets. Since then, Greece has never placed a single euro on the market because no private individual thought he could take on such a significant risk.
So all of Greece's new needs and all the renewal of maturing debt were financed by the international taxpayer. It is difficult to argue that less stringent conditions have been imposed on Greece since 2010. On the contrary, the governments (all of them, the German one, but also the French and Italian ones) have moved with considerable severity for fear of negative reactions from national public opinion. It is therefore by no means obvious that markets are more demanding than states. In all likelihood the opposite is true.
7. Finally, it is difficult to understand why the fact that "financial globalization has caused the relationship between a country's savings and the financing of its production system to disappear" is a problem. For the corporate world this is a liberation! Businesses are no longer forced to borrow from local banks, but can turn to investors anywhere in the world. Thus the good salons of finance, those who defend a small elite of the usual suspects, are skipped. Finally, the capable entrepreneur has one more chance because he can make his way without the need for a system of relationships.
And finally politics stops making good times and bad times in banks and therefore in companies: how can we forget the parties that divided up seats in banks leaving the governor outside the door? In hindsight, that was what the British call crony capitalism, a system in which success comes not from merit but from relationships, favors and privileges. From all this we tried to free ourselves during the nineties. We have no intention of returning to this. This too is a lesson that deserves to be remembered.
