Wednesday, November 30, 2011
Bankster games not worth as much as they claim
Many people have felt that the credit and risk activities of the big Banksters have not provided anywhere near as much value to the economy as claimed by those selfsame Banksters. Now a report from Bank of England backs up what so many have believed.
In a paper for the VoxEU think tank, the Bank's executive director for Financial Stability, Andrew Haldane, and economist Vasileios Madouros claimed British and U.S. national accounts have significantly overestimated the "value added" provided by financial services firms before and since the crisis began.So the values were grossly overinflated and we are still deleveraging the economy. The pain of the Depression has just begun.
The essence of their argument is that in calculating gross domestic product, government statisticians give far too much weight to banking activity that merely involves creating and bearing risk in lending and asset holdings.
Under the current system, the paper points out that the value added ascribed to U.S. financial intermediaries was as much as $1.2 trillion last year -- some 8 percent of GDP and a fourfold increase in its share of GDP since World War Two. In Britain the equivalent in 2009 was even higher at 10 percent.
To justify those huge gains, the economists argue that the productivity of bank capital and staff would need to have soared too -- in part justifying the huge rises in pay and bonuses. But the precipitous collapse of many of these banks in 2007 and 2008 questions whether the scale of those efficiency gains was anything more but smoke and mirrors.
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