State on top! No, Big Business back on top! No, tougher state rules!

So much back and forth on who's ruling the universe--states or big business.

Strong arguments that states take the upper hand as a result of the global financial crisis (like Bremmer's book, "The End of Free Markets"), but now that the dust settles (to include, apparently, last-minute changes to Basel III that make that new banking rule-set seem more robust), we get arguments saying that not all that much has changed.

From an FT full-pager analysis by Patrick Jenkins and Edward Luce:

It has been two painful years since that mid-September weekend when the collapse of Lehman Brothers jolted the world into a stark realisation – the high-rollers of the investment banking fraternity had threatened the very foundations of capitalism. The big risks that bankers had taken in the boom years, and the big bonuses they had been paid on the back of that, had come back to haunt us all.

For a while, a few signs of moderation were evident on Wall Street and in the City of London. But the show of humility appears to have been short-lived. This week, hackles rose among British politicians as one of the world’s highest-paid investment bankers, Barclays’ Bob Diamond, was named as the UK group’s next chief executive, and it emerged that the rival HSBC was also considering elevating Stuart Gulliver, its investment banking chief, to CEO.

“Mr Diamond illustrates in a particularly graphic way what happens when you have an extremely high-paid head of an investment bank taking over one of these major international banks,” said a clearly peeved Vince Cable, business secretary in Britain’s Conservative-Liberal Democrat coalition government. Lord Oakeshott, a fellow Lib Dem, said Barclays was “sticking two fingers up” at the government.

So has nothing changed? Are rampantly profitable banks returning to their old arrogant ways? And if so, will it spark a dangerous populist backlash?

Regulators insist there is no chance of the old risk-taking culture taking root again. Sunday brings a crucial meeting in Basel, Switzerland, when the likes of Jean-Claude Trichet, president of the European Central Bank, and Ben Bernanke, US Federal Reserve chairman, will gather with other senior regulators to approve tougher capital ratios – part of a plan, in the works almost since Lehman failed, to change the profile of the sector and pre-empt another crisis.

Reformers say the new rules should rein in the worst excesses, cutting banks’ profitability and providing a natural brake on pay levels that should be more effective than politically inspired taxes on bonuses.

But the overhaul, which will be phased in over a decade or more, will do nothing to calm populist anger, which many worry could erupt again soon – particularly in the US.

For now, as one banker puts it, the mood in the US is “the calm after the storm”. Having been cast as the ugly, overfed face of capitalism and the principal culprits in the financial crisis, Wall Street executives are enjoying a rare time out of the spotlight. With the country in campaign mode ahead of midterm congressional elections, discourse has centred on the stalling US economy, the stubbornly high rate of unemployment and the stance of President Barack Obama’s administration on taxing the rich.

Politicians on both sides of the Atlantic claim some credit for that . . .

“For the time being the populist wave is over, because it has been crystallised in the Dodd-Frank legislation,” says Scott Talbott at the Financial Services Roundtable, a lobby group. “But we are watching closely how the consumer agency develops. That is a key concern to our members.”

Britain’s political moves against the banks have, so far, been less extreme than those in the US . . .

On some level, it seems the best of both worlds:  pols confident of their new rules and bankers not feeling too unduly hemmed in.

Only time will tell, but clearly, not nearly the great or permanent shift predicted by many--meaning Bremmer's actual conclusions inside the book hold up better than the bold title on the cover.

Still, I would expect perceptions of who's "winning" to shift back and forth repeatedly in the months ahead, with all sorts of conflicting analysis--meaning only time will tell.

Comments

[Petrer]

"Big Business" vs. "Big Government" is a false dichotomy, because it completely fails to understand what actually brings prosperity, quite simply the notion of freedom, economic in this case.

"...the high-rollers of the investment banking fraternity had threatened the very foundations of capitalism."

This quote got me, I have no idea what the FT is talking about. Certainly, the big banks exacerbated the housing crisis. However, if you start in the middle, "blame wall street!!!" The solutions you will get will do no good, or in fact, more harm than good.

"Too big to fail," politically motivated FED policy, coupled with no sound national fiscal management at all, a policy of thinking EVERYONE should own a home through mortgage guarantees through government corporations are more legitimate issues because they are principle policies that affect "greedy," or rational behavior among "Wall Street."

Let me put is more simply, as always, instead of treating for the cure, the legislators with their oh so good intentions are treating the symptoms, at the expense of all the productive, and the benefit of all unproductive.

It is extremely irritating because all the populist anger brings down the good banks, costs the responsible borrowers and savers, and then I am the one called a shill!!

You can't have it both ways. Either you want economic freedom, or you want economic license, and the populous have ignorantly chosen license.

[Mike]

Big government or big business is indeed a false dichotomy. Milton Friedman was fond of pointing out that big business could not exist without big government, and vice versa.