Ending Subsidies For Wall Street, And Returning Finance To Its Roots

Nevertheless, demonizing the financial industry itself on account of financial crisis is equivalent to demonizing the automobile industry itself on account of automobile accidents. Finance delivers enormous benefits to society notwithstanding financial crisis, even catastrophic ones such as the Global Financial Crisis, just as the automobile delivers enormous benefits to society notwithstanding automobile accidents, which cause a great deal of human pain and suffering across the world. Therefore, radical solutions to financial crisis, such as wholesale nationalization of the entire financial system, are unlikely to work. Government bureaucrats are not good at, in fact they are terrible at running business, and there is no reason why banks should be an exception. Even worse, state ownership of banks and other financial institutions will channel credit toward state-owned firms or politically well-connected private firms at the expense of more efficient firms. This is exactly what we observe in China, for example. In short, private banks pose plenty of risks and problems for the economy, but replacing them with state-owned banks is most definitely not the solution…