Adair Turner's account of financial markets is insightful but misunderstands the role of the state in creating financial crises.
Last week was the occasion of my first visit ever to Hillsdale College. Wow, was that impressive: it’s sheer bliss to encounter a horde of confident, smart, and serious kids.
The reason for my visit was a big campus event on Dodd-Frank; I was one of the invited speakers. The tape is here. It’s based on a manuscript I’m still noodling over. Here’s the gist of it:
Conservative-libertarians mope about Dodd-Frank’s subsidies to big financial institutions. They also mope about the feds’ civil and criminal prosecutions of financial institutions—like, J.P. Morgan. My view is that these things are of a piece. As David Skeel (who also spoke at the Hillsdale gig) has explained in a very fine book, Dodd-Frank cements a symbiotic, “corporatist” partnership between the government and the big banks. Wall Street lives with de facto bailout guarantees and other embedded subsidies. That’s the quid; what’s the pro quo?
Answer, the government gets to siphon off a big chunk of the profits (in the case of Fannie and Freddie, all of the profits), chiefly by means of “law enforcement” (see, e.g., the $13 billion settlement in the works between JPM and DoJ). The SEC, the CFTC, the Fed, the FHA—they’ve all become profit centers for a cash-starved Congress. That’s the essence of adversarial corporatism: the bankers get to make a boatload of money, and the government gets to treat them like a criminal class. Whether these people have actually done something wrong is secondary, if not wholly irrelevant. With Wall Street’s capable assistance, government has managed to institutionalize and monetize the perp walk.
Is this a great country, or what?