Assuming systemic risk costs always exceed austerity costs licenses bank extortion
Evidence
Bill Janeway objects to this parable of Ireland and Iceland for two reasons (personal communication, November 4, 2012). First, it underplays the systemic risk generated by failing banks in larger economies. Second, as well as bail or fail, there is a third option, which can be thought of as “bail, reform, and then send to jail.” Both objections are valid. But, as to the first, while the costs of austerity are massive, real, and lasting, the costs of systemic risk are, if there is always a bailout, hypothetical. To assume that the disease is always worse than the cure gives banks a license to extort taxpayers. — Mark Blyth, Austerity, 1139
Categorization
- XREF: Connects to the broader austerity literature (Mattei) on who bears the costs of bank rescues versus public cuts. — connects to: Financial speculation externalizes its risks and costs onto the powerless — Max Haiven, Cultures of Financialization, 332; European austerity serves to reserve sovereign balance-sheet space for too-big-to-bail bank rescues — Mark Blyth, Austerity: The History of a Dangerous…, 617; European austerity is a bait-and-switch to save banks from themselves without admitting it — Mark Blyth, Austerity: The History of a Dangerous…, 208 (+5 more)
- SHARE: The ‘bail, reform, and then send to jail’ framing and the rebuttal that fines substitute for jail is a sharp point for someone working on financial regulation.
Broader Connections
- European austerity serves to reserve sovereign balance-sheet space for too-big-to-bail bank rescues
#exemplifies(0.85) — Mark Blyth, Austerity, 617 - Banks deliberately bought mispriced periphery debt because size guaranteed bailout
#expands(0.85) — Mark Blyth, Austerity, 226 - European austerity is a bait-and-switch to save banks from themselves without admitting it
#exemplifies(0.80) — Mark Blyth, Austerity, 208 - The sovereign debt crisis is a transmuted and camouflaged banking crisis
#corroborates(0.80) — Mark Blyth, Austerity, 35 - Extortion can function as a market-displacement tactic rather than mere income extraction
#expands(0.80) — Diego Gambetta, The Sicilian Mafia The Business of…, 492 - Financial speculation externalizes its risks and costs onto the powerless
#expands(0.75) — Max Haiven, Cultures of Financialization, 332 - Austerity transmitted sovereign-risk to the banks that held the bonds.
#qualifies(0.75) — Mark Blyth, Austerity, 31 - Government-backed loan guarantees without oversight enabled predatory lending
#exemplifies(0.75) — Albert Bandura, Moral Disengagement, 1487