Someone asked me recently to comment on the difference between Chinese banks and American banks. While both seeks to maximize profits, the former is much more under the control of the government and thus more aligned with national economic policy. Ann Lee recently told Allen and I that in the U.S., as in the recent bail-out of WSJ, the situation was a socializing of the risks but privatizing the gains. U.S. banks form a powerful interest that can co-opt the American public. That situation is no different than the Canadian one, apparently, as this amazing 12 year-old, Victoria Grant, who recently articulated what’s wrong with her country’s banking system:
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pug_ster says
12 year old knows more than the economists 3 times her age. I love it.
Ray says
That is why despite all the misgivings, I am all for the Chinese govn’t controlling the banks instead of the other way round.
I prefer this system over where the banks are private and sole goal is to maximize profit.
Ray says
However, this is just the dark side. Private enterprise cannot grow or develope without the banks. Without the banks, how many people can afford to own homes or buy new cars. The developed economies are created with bank credit. 成也萧何，败也萧何。
Basically, the hardest part for policy makers is to strike a right balance.
Xiaoxiao says
Well, actually the economists know better than this 12 years old girl. They just don’t want to say the truth, because they are also part of the scum. And I guess, what they said to deceive the public was quite genius, although not perfect……
Allen says
I think this is too simplistic.
1. the fact that the aggregate loan amount < actual reserve is a result of fractional banking system, not the national bank per se. 2. the reason for inflation is due to the result of an imbalance between money supply and aggregate economic output, not the collusion between private banks and national bank per se. 3. using monetary policy to manage the economy - by changing interest rate, reserve amount, etc. - is perfectly legit; the banks can be partners to the gov't in this endeavor. 4. the problem with current financial problems is not necessarily the national bank loosening money supply (although the purpose of the loosening, the policy behind the loosening, may be blamed) - even by creating new money out of thin air - or the participation of the private banks in dishing out money gov't created to be injected into the economy - but really with the structure of modern capitalism, where private businesses are legally entitled to profits but where the gov't becomes the insurer of last resort when big businesses fail. We privitize profits but socialize losses. This applies not just to banks, but to insurance companies, big corporations like GM, etc. - anything that is deemed too big to be allowed fail... 5. fixing this is not easy... Sure we can always force businesses to take the loss, even if businesses can be coaxed to act more responsibly, there will still be lots of societal pains when any of these business fails...