The Banks Are Not Alright
By PAUL KRUGMAN
NY Times Op-Ed: October 18, 2009
It was the best of times, it was the worst of times. O.K., maybe not
literally the worst, but definitely bad. And the contrast between the
immense good fortune of a few and the continuing suffering of all too many
boded ill for the future.
I'm talking, of course, about the state of the banks.
The lucky few garnered most of the headlines, as many reacted with fury to
the spectacle of Goldman Sachs making record profits and paying huge bonuses
even as the rest of America, the victim of a slump made on Wall Street,
continues to bleed jobs.
But it's not a simple case of flourishing banks versus ailing workers: banks
that are actually in the business of lending, as opposed to trading, are
still in trouble. Most notably, Citigroup and Bank of America, which
silenced talk of nationalization earlier this year by claiming that they had
returned to profitability, are now - you guessed it - back to reporting
losses.
Ask the people at Goldman, and they'll tell you that it's nobody's business
but their own how much they earn. But as one critic recently put it: "There
is no financial institution that exists today that is not the direct or
indirect beneficiary of trillions of dollars of taxpayer support for the
financial system." Indeed: Goldman has made a lot of money in its trading
operations, but it was only able to stay in that game thanks to policies
that put vast amounts of public money at risk, from the bailout of A.I.G. to
the guarantees extended to many of Goldman's bonds.
So who was this thundering bank critic? None other than Lawrence Summers,
the Obama administration's chief economist - and one of the architects of
the administration's bank policy, which up until now has been to go easy on
financial institutions and hope that they mend themselves.
Why the change in tone? Administration officials are furious at the way the
financial industry, just months after receiving a gigantic taxpayer bailout,
is lobbying fiercely against serious reform. But you have to wonder what
they expected to happen. They followed a softly, softly policy, providing
aid with few strings, back when all of Wall Street was on the ropes; this
left them with very little leverage over firms like Goldman that are now,
once again, making a lot of money.
But there's an even bigger problem: while the wheeler-dealer side of the
financial industry, a k a trading operations, is highly profitable again,
the part of banking that really matters - lending, which fuels investment
and job creation - is not. Key banks remain financially weak, and their
weakness is hurting the economy as a whole.
You may recall that earlier this year there was a big debate about how to
get the banks lending again. Some analysts, myself included, argued that at
least some major banks needed a large injection of capital from taxpayers,
and that the only way to do this was to temporarily nationalize the most
troubled banks. The debate faded out, however, after Citigroup and Bank of
America, the banking system's weakest links, announced surprise profits. All
was well, we were told, now that the banks were profitable again.
But a funny thing happened on the way back to a sound banking system: last
week both Citi and BofA announced losses in the third quarter. What
happened?
Part of the answer is that those earlier profits were in part a figment of
the accountants' imaginations. More broadly, however, we're looking at
payback from the real economy. In the first phase of the crisis, Main Street
was punished for Wall Street's misdeeds; now broad economic distress,
especially persistent high unemployment, is leading to big losses on
mortgage loans and credit cards.
And here's the thing: The continuing weakness of many banks is helping to
perpetuate that economic distress. Banks remain reluctant to lend, and tight
credit, especially for small businesses, stands in the way of the strong
recovery we need.
So now what? Mr. Summers still insists that the administration did the right
thing: more government provision of capital, he says, would not "have been
an availing strategy for solving problems." Whatever. In any case, as a
political matter the moment for radical action on banks has clearly passed.
The main thing for the time being is probably to do as much as possible to
support job growth. With luck, this will produce a virtuous circle in which
an improving economy strengthens the banks, which then become more willing
to lend.
Beyond that, we desperately need to pass effective financial reform. For if
we don't, bankers will soon be taking even bigger risks than they did in the
run-up to this crisis. After all, the lesson from the last few months has
been very clear: When bankers gamble with other people's money, it's heads
they win, tails the rest of us lose.
***
http://www.haaretz.com/hasen/spages/1121263.html
Israel needs legitimacy to wage war and peace
By Ari Shavit, Haaretz Correspondent
Haaretz Sat., October 17, 2009
It seems as if everything is fine. Israel's borders are quiet, the state is
stable, the economy is recovering. Hezbollah and Hamas have been deterred,
real estate prices are skyrocketing, and chemist Ada Yonath is on her way to
Stockholm to pick up the Nobel Prize. Even Ra'ad Salah's attempt to ignite
Jerusalem has thus far not succeeded: Palestinian sanity and Israeli
discretion are still maintaining order. So it is not surprising that
according to a recent comparative survey, Israel is one of the 30 countries
in the world in which life is just fine.
With a strong shekel, relative security and temporary calm, life here really
is good. Corruption and cynicism have both been hit hard, and today's Israel
is cruising on still waters. Without major achievements and without major
failings, without peace and without war, it seems as if things are all
right. Not great, but all right.
But things are not all right - they really are not. Why? Because underneath
those still waters on which Israel's ship is sailing lurks an iceberg.
The Goldstone report marked the iceberg's first appearance. Turkey turning
its back on Israel was the second. Attempts by European courts to try Israel
Defense Forces officers were the third; the boycott of Israeli products and
companies in various places round the world was the fourth; and global
indifference to the nuclearization of a regional power that threatens to
wipe Israel off the map is the fifth. Every week, almost every day, the
iceberg peeks above the surface. And when one takes a good look over the
railing of this pleasure cruise, one can see exactly what it is: The iceberg
is the loss of the State of Israel's legitimacy.
Ninety-two years ago, Lord Balfour sent Baron Rothschild a letter in which
he recognized the Jewish people's right to create a national home in the
Land of Israel. Sixty-two years ago, the United Nations recognized the
Jewish people's right to establish a Jewish state. The 1917 Balfour
Declaration and 1947 UN partition resolution gave Zionism the diplomatic
foundation on which the Jewish state was established and perpetuated.
But over the past decade, that foundation has been worn away, and the idea
of a Jewish state is now open to attack. The Jewish people's right to
sovereignty and self-defense is now controversial. Paradoxically, as Israel
gets stronger, its legitimacy is melting away. A national movement that
began as "legitimacy without an entity" is becoming "an entity without
legitimacy" before our very eyes.
The right is the primary culprit of Israel's legitimacy crisis. With the
occupation, the settlements and brutality, religious nationalism has fed the
destructive forces that seek to trample the natural rights of Jews and
Israelis. But the left has also contributed its part to the legitimacy
crisis. Those on the radical left did not always make certain that
opposition to Israeli policies would not turn into reservations about
Israel's very existence.
The right sinned by contaminating Zionism with the occupation, and the left
sinned by abandoning the campaign over Zionism's justice. As a result,
Israel lost not only its way, but its voice. The fundamental truths that
brought us here, and which justify our existence here, have been lost and
forgotten.
The campaign to renew Israel's legitimacy is a vital one. Without
legitimacy, Israel will be unable to contend with Iran in any way, shape or
form. Without legitimacy, Israel will not achieve peace, nor will it be able
to wage war. Nonetheless, to give Israel back what it has lost, the prime
and defense ministers need to do more than deliver speeches. They need to
act.
On one hand, there is an urgent need for a creative, daring diplomatic
initiative that would prove that Israel is truly and genuinely striving to
end the occupation. Without such an initiative, the world will not listen to
Israeli justice, which today remains a concept largely invisible to the
world. On the other hand, there is a need to enlist Israeli and Jewish
elites in the struggle to once again strengthen the foundations of Israel's
legitimacy.
This diplomatic and moral effort is no less important than the struggles
that produced the Balfour Declaration and the UN partition resolution. If
such an effort is not launched immediately, and does not soon succeed,
Israel will become an international pariah.
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