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Wednesday, October 8, 2014

Jay Barnes—a case study in practiced uselessness No. 000079

Jay Barnes, a Missouri State Representative, Republican from Cole County whines that, “The proper role of the legislature … is limited to state law and policy,” when asked about the General Assembly inquiring into Ferguson.

Regrettably, he doesn’t even listen to himself. A few days ago he offered on his blog his lack of wisdom on bank regulation and the 2008 Financial Crisis which lead to the Lesser Depression. Why he doesn’t limit himself to state law and policy isn’t explained.

Long story short, Barnes is a “know nothing” who believes he knows more about bank failures and their damage to the economy than everyone from Milton Friedman, on the right, to moderates like Keynes, to people to the left like Paul Krugman.

We will make it simple Jay. Where is your estimate of the damage that would have been done to the American economy in 2008 had AIG been allowed to fail?

Oh, you don’t have one?

There are people who do this work. For one, the Dallas Federal Reserve did a study entitled "How Bad Was It? The Costs and Consequences of the 2007–09 Financial Crisis."

So how bad was it? Really, really bad: The economists say a "conservative" estimate of the damage is $14 trillion, or roughly one year's U.S. gross domestic product. This is based on how much output was lost during the crisis and Great Recession, along with all the damage done to potential future economic growth.

As a consequence, after 6 years of rebuilding, we are still a long way from a safe shore. Today, the IMF reported:

Banks need a new fitness regime

Banks hold significantly more capital than before the crisis, but many institutions do not have a sustainable business model that can support the recovery.

The report analyzed 300 large banks in advanced economies—which comprise the bulk of their banking system—and found that banks representing almost 40 percent of total assets are not strong enough to supply adequate credit in support of the recovery. In the euro area, this proportion rises to about 70 percent.

These banks will need a more fundamental overhaul of their business models, including a combination of repricing existing business lines, reallocating capital across activities, consolidation, or retrenchment. In Europe, the comprehensive review of bank balance sheets by the European Central Bank provides a strong starting point for these much-needed changes in bank business models.

Here is a link to the complete report.

Having read Barnes one is pressed to ask, if we don’t have a government what will keep banks from getting even bigger and taking even more risk.  Naturally, Barnes has no serious discussion of such a point. He is what he i: a tired campaigner seeking only to feed off the jealously of people who envy Hank Greenberg.