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Chu writes: "The Barclays Libor scandal may have shocked the British public, but Joseph Stiglitz saw it coming decades ago. And he's convinced that jailing bankers is the best way to curb market abuses."

Joseph Stiglitz, an economist and professor at Columbia University. (photo: The Independent UK)
Joseph Stiglitz, an economist and professor at Columbia University. (photo: The Independent UK)



Joseph Stiglitz: 'Jail the Bankers'

By Ben Chu, The Independent UK

07 July 12

 

Joseph Stiglitz tells Ben Chu that rogue financiers have proven that regulation must get tougher.

Also See Below: Full Transcript of Interview

 

he Barclays Libor scandal may have shocked the British public, but Joseph Stiglitz saw it coming decades ago. And he's convinced that jailing bankers is the best way to curb market abuses. A towering genius of economics, Stiglitz wrote a series of papers in the 1970s and 1980s explaining how when some individuals have access to privileged knowledge that others don't, free markets yield bad outcomes for wider society. That insight (known as the theory of "asymmetric information") won Stiglitz the Nobel Prize for economics in 2001.

And he has leveraged those credentials relentlessly ever since to batter at the walls of "free market fundamentalism."

It is a crusade that has taken Stiglitz from Massachusetts Institute of Technology, to the Clinton White House, to the World Bank, to the Occupy Wall Street camp and now, to London, to promote his new book The Price of Inequality.

And kind fortune has engineered it so that Stiglitz's UK trip has coincided with a perfect example of the repellent consequences of asymmetric information.

When traders working for Barclays rigged the Libor interest rate and flogged toxic financial derivatives - using their privileged position in the financial system to make profits at the expense of their customers - they were unwittingly proving Stiglitz right.

"It's a textbook illustration," Stiglitz said. "Where there are these asymmetries a lot of these activities are directed at rent seeking [appropriating resources from someone else rather than creating new wealth]. That was one of my original points. It wasn't about productivity, it was taking advantage."

Yet Stiglitz's interest in the abuses of banks extends beyond the academic. He argues that breaking the economic and political power that has been amassed by the financial sector in recent decades, especially in the US and the UK, is essential if we are to build a more just and prosperous society. The first step, he says, is sending some bankers to jail. "That ought to change. That means legislation. Banks and others have engaged in rent seeking, creating inequality, ripping off other people, and none of them have gone to jail."

Next, politicians need to stop spending so much time listening to the financial lobby, which, according to Stiglitz, demonstrates its spectacular economic ignorance whenever it claims that curbs on banks' activities will damage the broader economy.

This talk of economic ignorance brings us to the eurozone crisis and the extreme austerity policies being pursued. Stiglitz is depressed. In 2000 he resigned from the World Bank and launched an excoriating attack on the way it and its sister institution, the International Monetary Fund, handled the Asian financial crisis of the late 1990s. He condemned the IMF for imposing brutal and inappropriate adjustment policies on bailed out nations - medicine which, he argued, merely pushed nations further into crisis. "For me there's some nostalgia here," he says.

Does he see any hope for the eurozone, I ask, or is it now heading, inevitably, for a breakup? "It is a train that can still be stopped" he says. "But the relevant question is the politics in Germany. Have they created in their rhetoric a dynamic that makes it difficult to stop? In particular [German Chancellor] Angela Merkel's rhetoric that the crisis was caused by profligacy. She's framed the issue as profligacy, rather than framing it as 'the European system is fundamentally flawed'."

The central argument of his latest oeuvre is that the huge inequalities of income and wealth that have developed in the US and elsewhere in the West over recent decades are not only unjust in themselves but are retarding growth.

"Every economy needs lots of public investments - roads, technology, education," he says. "In a democracy you're going to get more of those investments if you have more equity. Because as societies get divided, the rich worry that you will use the power of the state to redistribute. They therefore want to restrict the power of the state so you wind up with weaker states, weaker public investments and weaker growth."

It's an elegantly simple proposition. And one that logically points to a radical manifesto of redistribution and higher taxation in the name of the general public good. Time will tell whether this comes to be regarded as another manifestation of towering economic genius. But, for now, crusading Stiglitz has one more weapon in his hands with which to batter down those walls of folly.


Joseph Stiglitz: A Life in Brief

Born: Gary, Indiana in 1943

Educated: Amherst college, in New England. Later, Massachusetts Institute of Technology

Career: Nobel Prize-winning economist and former member of President Clinton's administration during his time in the White House and, latterly, an adviser to President Obama. He is currently a professor at Columbia University

Family: Married to Anya Schiffrin, a professor at Columbia

FYI: Stiglitz' home town also produced Paul Samuelson, the first American winner of the Nobel Prize for economics

Stiglitz wrote of Samuelson: "Paul allegedly once wrote a letter of recommendation for me which summarised my accomplishments by saying that I was the best economist from Gary, Indiana."



Stiglitz Interview: Full Transcript

 

There's some interesting stuff in here. Stiglitz says that the Vickers reforms to ringfence retail banking probably don't go far enough. He proposes a theory on why Germany practices left-wing economics at home but right-wing economics abroad (there's a solidarity gulf). He also explains why China can combine high growth with high inequality. Have a look at his answer, too, to the question of how high marginal tax rates should be to curb inequality and discourage rent seeking. 70%? That's just the start...

One of your great economic contributions to economic theory was showing that information asymmetry unravelled the theory that markets were perfectly efficient. But that that didn't really change the wider culture and many people carried on believing that markets were perfect. The Libor fixing scam is, in one sense, an example of information asymmetry in practice. So could this be a "teachable moment"?

Exactly. In so many ways it's a textbook illustration. Where there are these asymmetries a lot of these activities are directed at rent seeking - that was one of my original points. It wasn't about productivity it was taking advantage. It was clear that was what these guys [at banks] were about - it wasn't about creating wealth. The other point I raised in my research is that the asymmetries were endogenous and could have been affected by policy. The banks created the non-transparent market. And policies that force them to be more transparent would have curtailed this.

What should those policies be? In the UK we're ring-fencing retail banks. Does that go far enough? Or should we have a complete separation?

There are several lines to the policy debate. One line I've been emphasising is greater transparency. So there's part of the debate about the ability of the banks to impose risks on others. There's part of the debate which is about trying to get the banks to do for others what they're supposed to do - perform a social function. Part of the debate is about reducing their scope for manipulation. All these are part of the debate. The Libor scandal is on the transparency side. The ring fencing is about the risk of imposing costs on others. The original Glass-Steagall Act [in the US, which mandated a separation of retail and investment banks after the Wall Street Crash] was actually an attempt to encourage the commercial banks to both focus on lending and an attempt to prevent a conflict of interest, which are very strong when you have the two sides together. It was a dual function. The kind of ring-fencing in the UK, does it go far enough in protecting and redirecting? Probably not. Plus, if you haven't addressed the other issues of conflict of interest, excessive risk taking, you can still have to bail out ... remember Lehman Brothers was an investment bank, it was ring-fenced! We need to think about the structural. It's an important component. But the structural reform is necessary, but not sufficient.

You say economic actors shape markets via policymakers. We have a lot of lobbying by bankers of politicians. Should that be banned? Or is it inevitable?

You would not want government not to know what the industry believes. The problem is when the government takes seriously what the industry says.

So where do you draw the line?

For every meeting that the government has with business leaders, it [should] have to have a meeting with the labour groups and the representatives of civil society and with the think tanks. The problem today is that there's not equality of access. People today are worried they're hearing the banks' view. Take, for instance, the example of leverage. Banks say that increased capital requirements, reduced leverage, will force them to increase the cost of capital. Most economists think that's nonsense. The bankers who are supposed to know about finance, show no evidence of understanding finance. I don't know if you know about the Modigliani Miller theorem…

The more capital you have the cheaper your funding costs because you're less likely to go bust...

Well, the only reason that it would not be true is that the more leverage, the bigger the bailout. So every economist understands, the more leverage, the higher the cost of capital, the more risk. The bankers don't. They may be right [in the view that more capital pushes up the cost of capital], but that only reinforces the bail-out problem. So every time you have a banker in there, if you had a group of economists in there saying, I'm sorry, they've just proven once again that they don't know their job. They have just proven why you have to regulate them.

But that raises something you raise repeatedly in your book. Finance plays such a major part in campaign finance and the funding of political parties.

And that's why the rules of governance are critical. That's why the key part of the book is the connection between inequality of politics and inequality of economics. That brings us to these rules that reinforce inequality. Everybody knew that there was this scope for Libor manipulation. Many economists couldn't believe that it wasn't going on. We're focusing on the bankers but at the micro economic level this goes on all the time. I was party to a suit in the state of Alaska. Oil companies were supposed to pay the state royalties - 60 per cent of the net price, the price of oil net of their transportation costs. They manipulated the transportation costs. They had to pay the state of Alaska $1bn. Stealing a penny a time. For every gallon, they stole a penny, or a fraction of a penny. This is in the nature Adam Smith's invisible hand when there is a lack of transparency.

There is a lot of talk here about changing the culture - that we have to make these people better people. You seem to be saying, no, it's about the incentive structures.

In one of my earlier books I said, bankers weren't born bad, for the most part. They were often some of our best students. But when you give people that much money, make it so easy to steal, it makes corruption easy. Not everybody. I don't want to underestimate the value of improving the culture. Better teaching of ethics - that has a role. But the reality is that if you have enough temptation - i.e. you don't solve the policy problem - then it will be corruption.

The present generation of financiers - it's pretty much the same people in charge as before the crash. Doesn't that whole generation needed to be cleared out because they are so entrenched and have so much invested in the status quo? Or can they survive if you change the incentive structure? Can it still work with them in charge?

Not all of them are bad. Different parts of the banking system had different cultures. The trading part of the banking system had a particularly bad culture from what most people say. Those focusing on long term deals were better. Private equity had a very bad culture. The stories of Bain in the US - excess leverage, firing workers, taking your money out and letting a company go bankrupt. [That was] a business model that worked for a few people, but didn't work for our economy. Banking is not one activity. But I think there is a sense in which a cohort effect - that cohort was a go-go cohort. One of the questions that I have not seen in the British press is the extent to which British culture has been affected by American banking culture. Particularly certain people [Bob Diamond]. After the [1986] Big Bang, you attracted the worst behaviour form the US. It's probably not an accident that the AIG office was here…It was an example of this race to the bottom, with disastrous consequences. The reason I like this scandal is that it illustrates the main thesis of the book. A lot of inequality is rent seeking. Inequality doesn't lead to more efficiency. This rent-seeking activity actually interfered with the workings of a very important market. So it was negative sum.

If Bob Diamond rode out this wave of outrage, would you regard that as a worrying sign about our ability to hold these people to account?

Obviously there will be some consequences. But what I find surprising is that Diamond didn't say, "My bonus in the past was based on profits, part of which were attributable to manipulation. I'm going to give up my past bonuses that were in any way touched by that." He didn't say that. It's all about my future bonus. The question is: what about your past bonus? That was all based on phoney numbers.

If the Government was to say previous bonuses should be clawed back - is that a something you'd advocate? It would be difficult legally...

We have a legal system that may not force full accountability. That says clearly these guys have gotten away with it. That ought to change. That means legislation. We should recognise that we've seen so many events were the banks and others have engaged in rent seeking, creating inequality, ripping off other people, and none of them have gone to jail. None of them have been prosecuted individually. Banks are people. The irony is that most of these cases, if you look at what happened, the bank pays a fine. Who pays the fine? It's the shareholders. But the shareholders have usually been ripped off as well by the managers. So the managers sit there exploiting not only borrowers but also the shareholders. In the case of the UK, I gather the fines go to the FSA [Financial Services Authority], reducing the need for the tax that they impose on the banks. So the banks pay the fine and other banks benefit. It's redistribution among the banks. They're all guilty of these things. You pay this time, I'll pay this time. It costs them zero. So we have a system of very weak accountability and no individual accountability. And clearly that's the way they wanted it, but that's not a system of justice. That's another theme of my book. Not only have we paid the price in terms of economic performance, but in terms of our democracy and in our system of justice. How to fix that? In New York we have a very broad law called the Martin Act, which basically says if you commit things that are equivalent to fraud, you're liable. We're not going to spell out every possible thing you could, because there are an infinite number. Even if you did not have a law against manipulation of the market, you should have had legislation that was broad enough to say "this is market manipulation, if you do this you're guilty." If you don't have legislation like that, there's something wrong. This [the Martin Act] was a state law, in only one state. No one was prosecuted over robo-signing [a scandal of automatic foreclosures by US banks]. You don't have a robo-signing system without someone above designing it.

You wrote a whole book about how wrong the IMF was in its attitudes in the 1990s. Do you think it has reformed as an institution now?

The IMF under Dominique Strauss-Kahn in the European crisis was the best. That was pretty well known. They argued that you needed to restructure the debts, write down the losses, you couldn't push excessive austerity. In the Iceland programme you even had capital controls. [But] these are large organisations, and many country officers weren't fully on the programme. So there's a diversity. In Ireland they were probably the best of the Troika.

But they didn't prevail. The ECB and the EC have been almost as hard line as the IMF was in South Asia. That must be depressing for you to see Europe going that kind of ideological route...

Not a total surprise because Europe's view are very strongly affected by Germany's. Germany's views have often been very orthodox neo-liberal. Strauss-Kahn was a good economist and he understood that was the effect of austerity, the need to stabilise financial markets, the need to restructure debt. So he was reflecting the non neo-liberal view. You would have thought that 2008 would have destroyed the neo-liberal school, this view that markets always work. And yet, what is striking about the German view today, about Merkel, is she keeps saying you do the right thing and reward you. As if markets are these rational ... Secondly, she doesn't understand that to the extent that markets are rational, if you have austerity, the economy goes down, budgets don't improve, so they don't reward you. They don't look at this as a morality play, they want to get their money back. We saw in the East Asia crisis [of the 1990s] that austerity was not rewarded. Exchange rates went down, no evidence of any effective bailout. So for me there's some nostalgia here. Over and over in east Asia the US Treasury and the IMF would do something, it would have no effect, they would be surprised, they would do it again, it would have no effect, they would be surprised. We come back to Europe and we see exactly the same scenario. They have a given model, they try a little bit, it doesn't work, they try a little bit more, it doesn't work ... but I don't want to be too harsh. The course of economists has begun to get reflected in their rhetoric but not full in their actions. In the [EU] communiqué that came out last week they did two things that reflected what economists have been saying since the beginning. One is if the bailout is senior to other creditors you move everybody down and the markets don't like that. So you bail it out and - boom - things get worse. It took them two years to discover one of the main lessons of the history of bailouts. The second thing, they said give money for governments to bail out banks and for money to banks to bail out governments is a bootstrap that is not going to work. They figured that out. But again it took them two years to figure that out. It makes you a little bit amazed that it took so long.

But the destructive forces of austerity have done so much damage already. Could this be a train that can't be stopped now?

It is a train that still be stopped. But the relevant question is the politics in Germany. Have they created a in their rhetoric a dynamic that makes it difficult to stop. In particular Merkel's rhetoric that the crisis was caused by profligacy. You know Spain had a surplus, Ireland had a surplus. Every belt tightening, the economy goes down and the results are disappointing. It's been one tightening of the belt after another. The adjustments have been unprecedented. She's hoisted herself on her own petard. She's framed the issue as profligacy, rather than framing it as "the European system is fundamentally flawed." We have a banking system that's backed by each government. A banking system that is backed by its own government is state aid. Germany is providing more state aid than Ireland, than Spain, because Spain can't. Money is going to flow to the banking system with more state aid. So it's a violation of the basic principle of Europe. She has not recognised this yet.

You describe the German economic mentality as neoliberal. That's interesting because it's a much more social democratic place than the US and the UK. And yet these doctrines have taken root there. Isn't that a puzzle to you?

There's a distinction between the macro and the micro. And it raises the fundamental problem of solidarity. Within Germany there is a kind of solidarity, which has led them to help people who are disadvantaged. It's worked pretty well. And so they believe you can have a European social model work without free riders. But there isn't that solidarity outside the German borders. There's a presumption that everyone is lazy and if you help them they will take advantage of you. That's the contradiction. So you can see it as a lack of solidarity - people outside of your family don't behave as they should.

Doesn't it go further than that? The doctrine of the expansionary fiscal expansion, they thought it would work. They thought Greece would be growing by now. So it's not just that the Greeks are lazy.

The macro model is widely held in Germany. They would likely impose on themselves. It is conceivable to me that they would take their own medicine. They have a very strongly held model that has been proven wrong over and over again.

That's what's interesting to me. They have the same ideology as Mitt Romney and David Cameron in terms of macro worldview...

You're right. There's a disjunction between this extraordinary right-wing macro and yet a micro that is more humane. And it's partly because their micro works, that they've been deceived about the macro. There's a lot of automatic stabilisers built into their system. They worked well in the crisis because incomes did not fall, the economy recovered more robustly. So they've got a micro that makes the macro perform better. We don't have that. We've constructed a micro system - weak unemployment assistance, individual defined contribution pension schemes - all these kind of things make the system an automatic destabiliser. So we've weakened the safety net, made our system more unstable, increased inequality, made sure that in a downturn the bottom really suffer. In 2010 93% of all the gains went to the upper 1%. The median wealth was 40% in 2007-10, putting America's real wealth back to early 1990s levels. So all the wealth accumulation over a two decade period went to the top.

But what about somewhere like Greece where there is widespread tax evasion. How do you tackle that?

Greece is another aspect of the flawed European system - system of full labour mobility in a world where you have national debt. What that means is that if you're a young talented Greek person and you don't want to pay back you parents' debt you move. They thought complete labour mobility creates and efficient labour market, but the set of rules they have creates an inefficient labour market, because it's driven not by where your productivity is highest but by your ability to escape liabilities. And that's not efficient. I could be more efficient in Greece but because of the inherited debt I'll have to pay higher taxes. And so I'll leave. They didn't grasp that free mobility without a European-wide tax system leads to inefficient labour allocation. This is another example of what you might call fake neo-liberalism. You pick up some doctrines, but not the others. And the other is corporations being able to move anywhere. That means you move to where the taxes are lowest. And so you get a race to the bottom in taxes as you do in regulation.

So you'd agree with Merkel on that point - that you need to harmonise tax rates?

Oh you clearly do - the basis of Ireland's growth was tax competition, not efficiency. If I'm a rich Greek person I'm going to find a place to put up my residence and run my business. If you raise the taxes people are going to leave. So the reality is they're not going to collect taxes from the rich.

When you put it like that it's impossible to see a solution for Greece...

There is no solution for Greece by itself. But if Europe agreed to have a harmonised tax structure ... If you're going to participate in European business, for anybody [earning] over €100,000, you're going to pay a European-wide surtax. And we'll find some way of divvying it up. That would be part of a European fund that would make Europe work. That's the way you get out. But you are not going to get a small country...

You say high inequality reduces growth. But that's not true of China where there is huge inequality but 8-10% annual growth. So you're talking about developed nations?

I'm talking mostly about developed countries. But two points about China. Different parts of the country have grown differentially, especially in the earlier stages. So the increase in inequality is as much a geographic dispersion. Those are not characteristics of Europe. And it's a huge country, so geographic differences have more of an impact than they would in the UK. Every economy needs lots of public investments - roads, technology, education. Investments in the common goods. In a democracy you're going to get more of those investments if you have more equity. Because as societies get divided, the rich worry that you will use the power of the state to redistribute. They therefore want to restrict the power of the state - as [Mitt] Romney does, it's not a surprise - so you wind up with weaker states, weaker public investments and weaker public growth. China's not a democracy. It actually works the other way round. Their sole legitimacy is economic growth so they have to deliver. Because they're not a democracy they have been so good a growth. Not only are they not good at growth, they're good at poverty alleviation, because they have to deliver for the vast majority who were poor. So they deliver growth, poverty reduction. So in a way it's a nexus between politics and economics, in a way that's very different and works in just the opposite of ours.

In your book you say the maximum optimum tax rate may be as high as 70%. How would you advise governments to reach that? Should they simply put up taxes until revenues fall?

In fact the study on the 70% rate leaves out that a lot of the incomes at the top are rent seeking. And therefore if you tax that the economic consequences are positive. That means you ought to have even had a higher rate, which discourages rent seeking activities. I would tax speculators at a higher rate. That goes back to what we said about banking, because you diverting scarce resources from lending to gambling. So you redirect and make the economy more efficient. And land. You don't get more land by taxing land at a lower rate - the supply of land pretty much is inelastic. But in a democracy you have to get a consensus and right now there is not a consensus behind a 70% rate. So what I would do is to raise it with the understanding that doing experiments is very difficult. There are lots of things that go on and the general electorate doesn't always understand the counterfactual. So we do an experiment like raise the tax rate and we have a euro crisis and the economy goes down and somebody will say it's because you raised the taxes. So one has to try to make people understand was there an adverse effect on the things that we care about.

Putting taxes on things that are "socially bad" implies a degree of expertise on the part of policymakers that many would say they simply don't have. Is that fair?

If you think about the categories - there are things like inelastic like land, oil, natural resources. Not a lot of disagreement about that. Bads? Environmental, pollution - not a lot of disagreement. There are some areas like speculation where I think there's a broad social consensus. But obviously the speculators think they're engaged in constructive activities. That's going to be a challenge. But no more difficult than any other tax. Because most people think that what they do is special. So there's enough there. The hardest part is trying to identify monopoly rents. Because the natural response is that if we can identify, the anti-trust authorities ought to have dealt with it. That's the one area where I can think it will be more difficult.

 

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+75 # Barbara K 2012-07-07 14:47
Crooked bankers need to go to jail so this crap can stop. Then the proceeds of their dirty deeds should be given to the people they scammed. We are not so desperate for bankers that we should have to look the other way while they rape and pillage communities. That is so wrong that it is immeasurable.
 
 
+29 # Virginia 2012-07-07 17:34
Let's not stop with crooked bankers, send their attorneys, bought and paid for politicians and Judges with them. Tax me for a new prison or to renovate Alcatraz... It's not just the bankers that fed this corruption.
 
 
+6 # RLF 2012-07-08 08:45
Keep dreaming...with Holder being, like Obama, firmly in the fist of big finance, and one of the weakest AGs ever, prosecuting only leakers and not a single criminal from the top of finance or any other corrupt business. We'll see no action. The only reason there is any investigation is because it happened in Britain. This country will use it as an excuse to get a few hundred million dollars which doesn't come from the executives but from the institutional investors in these financial institutions... in other words pension funds around the world and municipalities have lost BIG and the result will be money to the Fed...so it can be stolen again by the same assholes. Round and round we go!
 
 
+23 # perkinsej 2012-07-07 14:53
Main problem with putting financial criminals on trial is that smart lawyers can confuse jury and get them off. We need to get these civil cases removed from the standard jury system. True everywhere else in civilized world. The British stopped have jury trials for civil matters in the 1920s and 1930s.
 
 
+23 # Stephanie Remington 2012-07-07 18:55
The main problem is that they're not even forced into a courtroom. They don't need lawyers when they've got politicians and regulators blocking charges against them.

Prof. Stiglitz pointed this out several times in his interview, but referring to it as "rent-seeking" makes it sound like it could be legitimate. Rent seeking includes BS like lobbying congress to change the rules in their favor (so they receive more and more corporate welfare and pay less and less in taxes and penalties).
 
 
+11 # paulrevere 2012-07-07 21:44
...AND they seek those 'rule changes' so the rule of law either has no teeth or, as the case of Glass-Steagall, the rule of law is eliminated...in visible hands and free markets do the devil's playground be.
 
 
+6 # dovelane1 2012-07-08 13:53
One of the things I think America and many other societies needs to do, is broaden its definition of what violence consists of. What the bankers in question have done, and are continuing to do, is just another form of violence.

It may not be immediate, or physical, but the outcomes are the same. What they desire is to have power over others and the earth, not to have power with others and the earth. And they will, apparently, use any means necessary to achieve that delusional state of mind and being.

If we could broaden our definition of violence so that everyone understood it in this broader sense, perhaps none of this would happen, as it would automatically be known and understood as violence, and not a healthy form of behavior for anyone, in the long run.

When people are focused on short-term gains and advantages, they will not consider or be aware of the long-term consequences of their decisions and behaviors. And if they are not held accountable for those long-term consequences, who among them will change.

Take fracking, for instance. Or land mines. Or nuclear power. What will the long term consequences be? Aren't all of these things forms of violence?

We must frame all of these kinds of behaviors and decisions as forms of violence against others and against the earth. Jail time will then be seen as a natural and necessary outcome. Perhaps only then will real change occur.
 
 
+2 # ericlipps 2012-07-09 14:13
Quoting dovelane1:
One of the things I think America and many other societies needs to do, is broaden its definition of what violence consists of. What the bankers in question have done, and are continuing to do, is just another form of violence. Take fracking, for instance. Or land mines. Or nuclear power. What will the long term consequences be? Aren't all of these things forms of violence? . . .

We must frame all of these kinds of behaviors and decisions as forms of violence against others and against the earth. Jail time will then be seen as a natural and necessary outcome. Perhaps only then will real change occur.

We need to be very careful about "broadening our definition of violence" to embrace practices we don't like which are not, at present, considered forms of violence, such as the use of nuclear power or fracking.

The Consgtitution was quite careful t specify exactly what qualifies as treason for eactly that reason. In colonial times the British Crown had a habit of "inventing" new forms of treason and applying punishment retroactively. In the modern era right-wing fundamentalists have tried to shoehorn creationism into public school science classes by redefining science to include supernatural explanations for events. Redefining violence to suit our own political purposes is guaranteed to come back to bite us.
 
 
+37 # mike/ 2012-07-07 15:12
is anyone looking into using RICO since the repugs will not let Dodd-Frank and the other regulatory laws work?

not only does all this 'business' deal with across statelines/inte rstate commerce but international as well.

can the world bank along with the world court do anything?
 
 
+31 # Trueblue Democrat 2012-07-07 16:06
I doubt very much that Golman-Sach's alums like Larry Summers, Tim Geithner, Ben Bernanke and a couple of other anything-for-a- dirty-buck scuzbags -- who make up the Obama economic team -- are looking into using RICO.

I doubt they are doing anything, other than uttering platitudes on their way to the bank (probably in the Caymans) to deposit their winnings.
 
 
+9 # soularddave 2012-07-07 19:49
If the writing on the wall is large enough, and well enough understood, and broadly supported, maybe Obama will change horses between terms.

Besides the mere Congress, we'll probably need to depend on a bigger and more reliable forum to amplify the message. Comes to mind, our friends in the street known acronymically as "OWS". The beauty in that is their ability to act like paint so they cover all the bases, and that each of us who agrees can join them to amplify the essential message.

As Obama, himself, said "Make me do it!"
 
 
+6 # paulrevere 2012-07-07 21:47
'winnings'??

more like loot, booty, pillage, plunder
 
 
+4 # RLF 2012-07-08 08:47
Obama's economic team werre probably setting the LIBOR under Bush...of course no one will be prosecuted.
 
 
+4 # barbaratodish 2012-07-07 16:57
Quoting mike/:
is anyone looking into using RICO since the repugs will not let Dodd-Frank and the other regulatory laws work?

not only does all this 'business' deal with across statelines/interstate commerce but international as well.

can the world bank along with the world court do anything?


I wrote here (at RSN) and elsewhere suggesting using RICO long ago. Maybe since the suggestion is now from a male(you ARE a male Mike, are'nt you), someone (male?) will "run" with it?
 
 
-21 # barbaratodish 2012-07-07 16:58
Let's tax everyone 150%, because EVERYONE has resources that are hidden! lol
 
 
+7 # Daibermuda 2012-07-08 06:03
"disgorgement'! That should get some attention. Compensation paradigm must change. Fact is that the definition of the word profit seems to have changed over the past three decades. it used to be that one was paid a bonus once your actual profit was made. NOT an accounting mark to market! How can these be deemed profits when their are still liabilities on the books? Go after bonuses paid on so called profits at banks. Go back 10 years and seek disgorgement of all assets from the beneficiaries of accounting fraud. Then lets get to the root of the problem FASB.
 
 
+36 # MidwestTom 2012-07-07 15:13
MFGlobal's Corzine, who admitted in an email to transferring $200 million to his personal Swiss account while the investors last $1.2 Billion, is still an uncharged man. Hr previously worked for Goldman Sacks, which makes him immune, since they control our government.
 
 
+17 # Virginia 2012-07-07 17:39
And to think they started the rumor that it would be a moral hazard for homeowners (who were induced by fake LIBOR rates and duped) to get a reduced principal or free house... And guys like Corzine hide hundreds of million$ in off shore accounts... Now, just tell me where the moral hazard resides!?
 
 
+5 # paulrevere 2012-07-07 21:53
the rife duplicity and raging hypocrisy are rather disarming aren't they?

...and one must consider that these people are either clueless, treat others in their lives similarly or are so sociopathic that they only can attract psychophants, ballsucks, toadys and hangers on as intimates.
 
 
-1 # RLF 2012-07-08 08:49
Time for us to use our military inteligently and attack any country that offers off shore accts...hello Singapour!
 
 
+1 # phantomww 2012-07-07 18:41
Plus he is a dem and an Obama money grabber.
 
 
+17 # HerbR 2012-07-07 15:38
Dear Prof. S., would the use of the term USURERS be helpful at all in casting moral aspersions on this despicable tribe ?
 
 
+9 # sue1102 2012-07-07 15:51
...and how does he recommend going about doing it?
 
 
+36 # vt143 2012-07-07 16:12
I mean get with it! You bust a kid with an ounce of pot and all the politicians are screaming that you have to send a message, criminals need a deterrent: give them a jail term. So bankers rig the system and they get a big fine. WOW! Make 3 billion and get a $750,000 fine. Sign me up for that program! You start having the criminals (please refrain from the modifier "white collar"--they'r e thugs, punks and low lifes like meth cookers) making them do hard time and do a confiscatory fine like they do with drug dealers. Send them away for 40 years AND take away ALL their assets using the racketeering laws. Let them rot in jail and have their kids and spouses face the specter of having to start from scratch and make a real living. Now, that's a deterrent that will stop all except the hopelessly sociopathic like Madoff and his ilk.
 
 
+6 # paulrevere 2012-07-07 21:58
Yes Sir...I am hearing the first notes of a guillotine symphony...'thi s is reality o' Masters of the Universe' wake up calls for all of 'em I say!!
 
 
+28 # Scottford 2012-07-07 16:23
No economy can be revived without confidence. You cannot have confidence if the bankers are not jailed and teeth put into regulation. It's that simple.
 
 
+2 # barbaratodish 2012-07-07 16:51
If people KNEW what they wanted, then instead of market asymmetry people would BE markets! But because people are UNAWARE that they ARE limitless resources in and of and to themselves, they all seek external ILLUSIONS instead of themselves!
 
 
+9 # paulrevere 2012-07-07 22:06
As Abe Lincoln put it...
""Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration. Capital has its rights, which are as worthy of protection as any other rights."
 
 
+32 # fredboy 2012-07-07 17:03
History shows it is very hard for slaves to jail their owners.
 
 
+8 # soularddave 2012-07-07 19:58
Yeah, the owners have a word for that. It has become a fearsome and dirty word in our culture. The police across the country have been equipping themselves to quell any uprising that could lead to it.

It'll be on CNN and FOX when it happens.
 
 
+5 # barbaratodish 2012-07-07 20:27
Quoting fredboy:
History shows it is very hard for slaves to jail their owners.

And even IF bankers Do go to jail, prison, etc., they go to a country club type "pen" (especially when it is a federal "rap", which most banking violations are) so why SHOULD they be worried about repercussions? What bankers NEED to be frightened of is the INEVITABILITY of people becoming aware that people ARE their own resources and that PEOPLE can BANK on themselves, once they become aware that they HAVE limitless potential! So there is great repression of this awareness by the limited, fear mongering status quo "authorities" and moralists, especially churches,etc.
 
 
+4 # MainStreetMentor 2012-07-07 17:30
Within the RSN banner at the top of this page, click on "godot" ... then type in: "How about ... just one?" and read the article. It deals with what theswe banks have caused ...
 
 
+14 # mitchell donian 2012-07-07 17:42
Gamgster Capitalism has a firm grip on the throat of Euro-American markets. If the people want a change they should make their demands NOW. If Obama wishes to win he must demand now the resignations of the Summers-Geithne r hoods in his cabinet; replace them with Stiglitz and Volcker, NOW. Don't wait for pie-in-sky promises. Demand it now. Diamonds performance in London was nauseating. He used the word "love" so many times in reference to Barclay it should give pause to his wife. He sounded psychotic and deraigned. Gangster-Capita lism can only be brought down by the application of criminal law and that is by holding officials responsible and throwing them in jail. Not to do so leads the bankers to believe they are "masters of the universe" and do as they did in the "Occupy" actions of the New York City Police Department when Goldman-Sach "rewarded" them with millions of dollars for their surpression of lawful demonstrators excercising their Constitutional rights. They acted as if the police were their hired thugs. Gangsterism can only be stopped by jailing. Justice must be served.
 
 
+19 # reiverpacific 2012-07-07 17:56
To accomplish anything like Stiglitzs' proposal (and he DID work at the IMF), there first needs to be a truly progressive government elected with tax structures balanced out accordingly and with the courage to deal with the domineering, damn near omnipresent nature of banking and investment here and in other countries they as good as own.
Tony Blair was far too greedy and self-serving (whilst Dimmwits Bush encouraged it), Cameron is a full-on Thatcherite Tory and Obama is a Center-rightist with Bernanke and other such interpreters of the economic word having his ear, bad portents.
The IMF and World banks have sown untold destruction globally, paying bribes to corrupt governments and imposing impossible conditions for payback of borrowed project funds, further driving them under the US/European leaking roof, having extracted resources and promises of further penury, which is why I applaud Iceland and Bolivia for getting rid of their economic hit-men and restructuring their whole systems -the latter kicked Bechtel out when they tried to commandeer and commodify Bolivia's water systems- and other left-leaning South and Central American countries.
As long as these materialistic (doing God's work"!) villains in suits can send lobbyists to burrow in through the back doors of power, which they helped to create and maintain to a large extent, it doesn't look good folks!
It HAS to come from we "Moles in the Ground to root that Mountain down".
 
 
+20 # graybeard.tom 2012-07-07 18:10
to help focus Stiglitz' advise to the immediate situation, i would offer Barack Obama the following advice:

if you would like to insure your re-election for a second term as US President, here is all you need to do;
monday morning send SEAL Team 6 to Wall Street. Arrest about a dozen known profiteers (i suggest starting with Jamie Dimon), and transport them to our base at Guantanamo Bay. Inform the press that they are being jailed as terrorists and subversives - "enemies of the people", and their civil rights have been suspended.

result: within 24 hours your approval rating will increase by 50%, and your re-election will be assured.

side effect: you will lose all support (?) from republicans.... ...
 
 
+11 # Virginia 2012-07-07 19:06
And call a moratorium on foreclosures, evictions and deficiency judgments while he has the corruption investigated.
 
 
+8 # Gevurah 2012-07-07 18:20
But who's going to send them to jail? Our Corporate Masters and their servants, on or off the bench, are all in the Club together. They'll never let an honest judge bring one of these criminals into
court. Somebody will intervene before that.
 
 
+10 # Vern Radul 2012-07-07 18:33
JUST the banksters?

Uhhhmmm....

Rather than bailing out wall street over the subprime mortgage mess they created for themselves and everyone else, the administration and the fed could instead have paid off every mortgage in the country, subprime or not, for less money (only about 12 trillion) than the 18-20 trillion they gave wall street as a reward for pillaging the economy. This could even have been done with tax credits thus avoiding any outlay of money from the fed.

It would have restored the value behind the CDO mortgage backed securities that wall street got themselves into so much trouble with, and thus saved wall street while tremendously boosting the consumer driven economy as the money would have gone directly to the mortgage holding banks while at the same time effectively doubling the amount of bailout money by lifting a enormous debt weight from all those homeowners who would then have had an equivalent amount of disposable funds to spend any way they chose.

The US consumer economy would be rockin' by now.

Now, had this been done Obama and the Democrats would likely have lost all future donations from wall street and they'd be whining so loud we couldn't hear ourselves think - those donations of course were more important to Obama than bailing out homeowners instead of the party's corporate owners.
 
 
+6 # Virginia 2012-07-07 19:16
Not just the money in cash donations - look at the sweetheart deals they got in mortgages ... For them, their staff and friends and families...and then there is the stock investments... Oh, their disclosure statements read like a menu at Chez Morgan Chase... A little conflicted I'd say.

Notice a few of them who took these deals (from boths sides of the fence) had enough smarts to retire early...what was the line last week..."diapers and politicians - change them often."
 
 
+6 # Vern Radul 2012-07-07 19:49
Enough smarts to retire early?

Yes.

As Obama once said to the bankers: "my administration is the only thing standing between you and the pitchforks", and he meant exactly that, apparently.
( http://www.thedailybeast.com/newsweek/2012/05/06/why-can-t-obama-bring-wall-street-to-justice.html )

Politics is an "industry" - a protection racket - and a sucker fleecing racket.

No one in any industry intentionally sets out to reduce their revenue sources.

Most people who go into politics go into the industry for the same reason most people go into any other industry.

To make money.

Is this some kind of a mystery to anyone?
 
 
+6 # Virginia 2012-07-07 22:19
Congress is paid handsomely, has huge staffs, perks and benefits... Plenty of travel, socializing, culture and nightlife...on our tax dollars - a better healthcare program than we'll ever see. Don't you think they should have enough integrity to pass on insider trading and enough sense to tell the difference between a gift and a bribe, yeah?
 
 
+6 # Vern Radul 2012-07-08 07:15
We'd like them to have enough integrity for that.

But it's fairly obvious that most of them go their FOR the perks, and FOR the bribes, and to delude themselves into thinking that they've become one of the "elites".

Not to improve the lot of the "unwashed peasants". In their view that would be like encouraging panhandlers.
 
 
+11 # Rita Walpole Ague 2012-07-07 18:33
Prof. J. Stiglitz, you are brilliant ! And, right on the money you are - we are desperate for behavior mod. to immediately begin, with heavy duty aversives (i.e. mandatory jail time vs. fines that are a mere slap on the wrist to the villainaire ruling 1%) firmly in place and followed diligently.

Lots and lots we've gotta do to.....

UNDO THE COUP !
 
 
+5 # cordleycoit 2012-07-07 18:44
What a wondrous time we live in where politicians are the whores and bankers the pimps. The bankers dole out the money the whores work hard for parting the people from their money. The rest of government is the "easy rider" extending their hands to bad girls who are getting their allowance from the bankers. When they are caught,seldom happens the pimp walks and the bad girl politician takes an easy fall. No one ever puts the cheif pimp in the can on cake and tea in the Scrubbs or AdMax, that is unheard of.
 
 
+9 # Shorey13 2012-07-07 20:20
Besides Professor Stiglitz, an even more prescient observer of our system was Reinhold Niebuhr, who published "Moral Man and Immoral Society" in 1932! One of his main conclusions was that middle-class "liberal" intellectuals mistakenly believe that Reason is adequate to confront and overcome the privileged classes. They are also, he noted, unwilling to acknowledge the necessity of coercion to rein them in. Professor Stiglitz is entirely correct, of course that putting all of these sociopaths in jail is the only solution. But, we all know that the real Golden Rule is that "whoever has the gold makes the rules," and their ability to buy and own our Representatives and Regulators insures that the laws will always be written so as to protect them. All corporations are formed for the primary purpose of protecting the officers from responsibility for their decisions. Fines, no matter how large, are simply considered part of the cost of doing business. Instead of arguing endlessly about how many angels can dance on the head of a pin, commenters here and elsewhere should be organizing to rewrite the Constitution.
 
 
+5 # dick 2012-07-07 20:35
NOTHING Obama has done or can do will make up for his impeachable Obstruction of Justice protecting the Organized Crime mafia families Goldman Sachs, AIG, Citi, B of A, Chase, etc. His obstruction reminds one of the Catholic Church's obstruction of child molester justice, enabling the Sickos to do it over & over again. If anyone but a a black Democrat had done this, progressives would be screaming for his head. DO NOT reward him. Send $$ to Liz; prepare for 2016.
 
 
+3 # nirmalandhas 2012-07-08 00:06
Personally I would like to see a few economists who service the theories on which our current global monetary system stands go to jail too. They have brought us to the point where we face a blank wall ahead and have no option other than increasingly desperate and more and more frequent bailouts which will soon leave us with a bunch of numbers that have no relation to the dwindling resources with which we struggle to keep our support systems afloat…just a matter of time before the horrendous crash.
 
 
+3 # BeaDeeBunker 2012-07-08 03:15
I feel a bit strange doing this, but parts of a previous comment fits the bill here also.
All my comments seem to revolve around the idea of 'fairness' and being a game player, rather then a person who just plays games. A true game player plays fair. It's really no fun when you win by cheating, bending the rules or getting around them some way. In my book, a game player is one who believes that the means justify the ends. For a person who just plays games, the ends justify the means, is their credo.

Apply this simple code of behavior to all these current issues, and their corresponding adherents, and you will find that it fits perfectly, or nearly so.

It's really sad when a nation begins to wake up, often too late, to the fact that they have collectively taken their eye off the ball, and have no reason to complain when that ball smacks them in their face and bloodies their nose. As Pogo said long ago...we have met the enemy and it is us.

I find that at times like this wry humor helps the medicine go down. (Also RICE helps with the bloody nose.) Here's my adaptation of an old lawyers joke, repeated from a previous comment, with some additions:

QUESTION: An investment banker and a commercial banker fall off the roof of a 50 story building. Given that the weather is dry and cool, the winds are mild and steady and there are no protrusions on the building, who smashes in to the ground first?

ANSWER: Who cares!
 
 
+2 # Daibermuda 2012-07-08 04:43
Joseph Stiglitz tells Ben Chu that rogue financiers have proven that regulation must get tougher.

These are not 'rogue' financiers! That's the crux of the problem. They are your every day normal bankers. Somewhere along the way the industry began to feel they were an entitlement program and, bit by bit the compensation paradigm has become woven into the fabric of society. It's ratehr like the erosion of civil rights in America.....eve ryone is asleep at the switch! Give an inch and they will take a mile! Time to vote for people, not parties. Bring back Barney Frank.
 
 
+5 # mdhome 2012-07-08 07:41
As long as they are fined $50 for every million they steal, they will continue to steal, gamble with the public's money, only answer is prison.
 
 
+6 # walt 2012-07-08 08:15
Jailing the bankers....Grea t idea and one that should be done, but that would cut off campaign finances for both parties! The corruption is so intertwined and entrenched that it might never be accomplished. The USA, inc. We have the best government money can buy.
 
 
+3 # Counselor1 2012-07-08 08:26
In spite of bank power, gridlock is phony. Congress can create $trillions in United States Notes without increasing our debt. These “Legal Tender Notes” could be spent into the economy to jump start it. Very low interest, long term loans could be made to Americans “underwater.” $1.4 trillion U.S. Notes could produce 19 million jobs, provided we get over the idea that this money has to be used in maximally “productive” ways. American’s simplistic moralism (“jobless means undeserving”) and general welfare require millions of jobs to replace jobs killed by automation, outsourcing, etc. The jobless can’t all operate earth movers or computers. But millions can engage in paid, high value, low – tool use child, senior and disability care, education, homemaking, pick and shovel burial of the electric grid, building retrofitting, using hammers, paint brushes, trash spears, and other simple tools.

Would this be inflationary? Yes! The Panic of 2008 started severe DEFLATION. Only massive targeted re-flation can counteract it. Lack of it turned the Panic of 1929 into the Great Depression of ’29 – ‘39. Mega-banks hate the idea of U.S. Notes. They lose “earned” interest because they aren’t lending Notes to us. They’ll send a thousand “Liars for Lucre” economists, etc. to argue against it.

So look into U.S. Notes for yourself, then push the idea until they can’t ignore it any more!
 
 
+1 # Innocent Victim 2012-07-08 09:21
The current article states: "Stiglitz wrote a series of papers in the 1970s and 1980s explaining how when some individuals have access to privileged knowledge that others don't, free markets yield bad outcomes for wider society."
That's it?!!!
That's what it takes to get a Nobel in economics? You write a series of papers explaining the obvious?
Well, then, anyone who bothers to do physics or chemistry should first write a paper on economics and get a Nobel.
 
 
0 # JSRaleigh 2012-07-09 10:49
Quoting Innocent Victim:
The current article states: "Stiglitz wrote a series of papers in the 1970s and 1980s explaining how when some individuals have access to privileged knowledge that others don't, free markets yield bad outcomes for wider society."
That's it?!!!
That's what it takes to get a Nobel in economics? You write a series of papers explaining the obvious?
Well, then, anyone who bothers to do physics or chemistry should first write a paper on economics and get a Nobel.


It's "obvious" now because of the series of papers Stiglitz wrote. It wasn't "obvious" back then.
 
 
+2 # JSRaleigh 2012-07-08 10:24
With the Bank of England being implicated in encouraging Barclays to submit false data to the LIBOR committee, I wonder how long it's going to take for the other shoe to drop and the Federal Reserve's collusion to be exposed.
 
 
+1 # Tigre1 2012-07-08 14:48
Guys, guys, guys. Wake up: as long as the banksters are alive, you'll NEVER get them.
They can ALWAYS buy their way out. They're doing it NOW.

Thus you cannot jail them. Guillotines alone can solve it. It won't take many. Fewer than ten percent of the guys from the top three floors...of every building on the correct streets. Must be quick, and a surprise, it can't be done by confrontation with overwhelming police technology and force.

Suitable punishment, they can't buy their way out, laws will change very quickly on finance. Re-distribute, re-institute the Constitution, water the Tree of Liberty with the blood of tyrants, thieves, murderers, exploiters all.
OUR America. My land, your land.T'is of thee and me too.
 
 
0 # tomo 2012-07-08 18:38
Of course our government (and the British government) should supervise financial institutions, have tighter regulations, and punish wrongdoers. But I don't think it's going to happen soon--at least this side of the Atlantic. The time to do it here would have been at the start of 2009--but unbeknownst to the voting public, the fix was already in. So, Stiglitz, what can still be done?

1) People could act--and should act--so as to take from the traditional banks all the deposits they possibly can. They should let credit unions handle their banking needs.
2) People should denounce by name the heads of institutions that are ruining America. Some will respond: "We shouldn't judge." A society that can no longer recognize its entrenched enemies deserves to go down. The heads of corporations today are hurting us and the world at large far more than the likes of Al Capone ever did. 3) Selective boycotts could helpt. 4) We may need to struggle toward a new regionalism. Our Congress and our presidency (and our Congresspersons and our Presidents) are so corrupt by now it is futile to expect much of anything but harm from them. Good fire departments, good schools, good neighborhoods, good health-care are too important to be left for further negligence by the federal government. (Don't get me wrong: the people who have spoken the most about the evils of "big government" are among the greatest corruptors of government.)
 
 
+1 # JSRaleigh 2012-07-09 10:40
I wonder if tax evasion in Greece is any higher than it is in the U.S.
 
 
+2 # sapereaudeprime 2012-07-09 12:29
Ten or twenty years in a closely-guarded Federal same-sex dating institution would be appropriate only if these bastards' entire estates were also confiscated and used to pay down the national debt, while their mates and spawn were put out in the street with nothing but a toothbrush and one change of clothing. Fines are meaningless to anyone whose seven-figure bonus has been taken from the taxpayers.
 

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