May 23, 2015

Though capable Giants could be great at smoothing over a crisis, the not so capable could help more getting over it.

“How lucky could you be that you have a guy who spent his life studying the Great Depression [Bernanke], combined with a guy who’d spent almost his whole life working on every global financial crisis for the previous 20 years and was a genuine markets guy [Geithner], combined with somebody who had been chief executive and chairman of one of the top investment banks in the world [Paulson, in the leadership positions they were in during the biggest financial crisis of the century”

Sir, that is what James Gorman, “the Morgan Stanley boss”, tells Tom Braithwaite during his “Lunch with the FT”, “Banking is sexy, creative and dynamic” May 23. I first wince a little bit about the “genuine markets guy” since we really did not see a lot of genuine market solutions but, what really comes to my mind, is the following.

What if instead of these Giants, there would instead have been some perfectly inept in their government positions? It would clearly have been a much harder and harsher landing… but could it no be that in such case we would have gotten over the crisis faster and more completely? As is the experts might be experts smoothing things out during a crisis but perhaps not in solving it. As is we still live with much overhang in terms of huge government borrowings, QEs to reverse, the permanence of some actors the world could have been better off getting rid of, and the same source of distortion that caused the crisis, the credit risk weighted capital requirements for banks.

In August 2006 FT published a letter I sent it titled “Long-term benefits of a hard landing”, and year after year I find more reasons to argue for that. Sir, had there been a harder landing don’t you think that the system would for instance have cleansed itself more of “$22.5m” CEOs annual pay packages?

The smoothing of a crisis, though nice for some, creates its own victims… Our young, with lousy employment perspectives, could well be the victims of the capable Giant's guiding and smoothing hands.