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As Europe grinds out yet another doomed banking system
rescue plan, it might be helpful to examine the underlying assumption, which
is that we need these big banks.
Do we really? If Goldman Sachs, JP Morgan Chase,
Deutsche Bank, Crédit Lyonnais and five or
six of their peers ceased to exist tonight, what would happen? Would their
absence change the number of factories, hospitals, farms, biotech research
labs, oil wells, or gold mines? Would there be fewer houses or cars? Would
computers get slower or TVs lower-def? No. The
world of tomorrow morning would have exactly the same amount of real wealth
and productive capacity as it does today. The main thing it wouldn't have is
a lot of arcane financial instruments that don't produce anything edible, and
a hundred thousand or so bankers making inordinate amounts of money moving
this paper around. To the extent that those bankers would have to take jobs
making real things, the post-Goldman world would arguably be richer and more
productive.
The big banks' disappearance might, admittedly, leave
some ripples in the pond. Interest rates might rise and stock prices fall as
countries like the US and Japan have to suddenly
live within their means. Military budgets, public services and pensions would
shrink dramatically. But there would be compensations. Where today's low
interest rate regime is devastating to retirees living on the proceeds of
bank CDs and Treasury bonds, higher interest rates would give them back their
personal incomes, probably more than offsetting lower Social Security and
Medicare benefits. For young families, falling real estate prices (also due
to higher interest rates) would bring starter homes within closer reach. And
all those soldiers now occupying foreign countries, or training to, would be
freed up to take real jobs alongside the ex-bankers.
People who have leveraged themselves to the hilt to buy
various assets would have to sell, of course, but savers -- especially those
with a lot of precious metals -- would snap up those assets and put them to
productive use. Apple and Warren Buffett's Berkshire Hathaway between them
have over $100 billion of ready cash, which they'll use to acquire and deploy
cheap assets. Community banks that focus on mortgages, business loans, and
customer service(!) will thrive as depositors
abandon Bank of America for local institutions. Farmers markets and local
farms will grow to replace a disrupted global agribusiness supply chain.
Freed from all those financial sector campaign contributions, politics might
even get a little cleaner.
Viewed this way, the process looks a lot less
threatening, and might even be a path to the kind of world most rational
people would prefer. So relax, let the big banks go, and let's see what
happens.
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