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.S.treasury secretary, who swapped a small proportion of the outstanding debts into so-called Brady bonds with U.S.guarantees.Although all major U.S.banks were effectively insolvent according to today’s accounting standards throughout much of the period from 1982 to 1989, only one of them, Continental Illinois, failed—and its troubles had more to do with a fraud in Oklahoma than a systemic financial crisis.14Far from causing Japanese-style economic paralysis and credit contraction, therefore, the decision to keep effectively insolvent banks on life support throughout the 1980s facilitated a rapid economic recovery and allowed an orderly restructuring of global finances.15 Thus, recent historical experience from America and Europe suggests the opposite conclusion to the conventional wisdom about the Japanese lost decade: The broader economy will usually benefit if crippled banks are supported by the government in financial crises and encouraged to carry their loans at above-market values, rather than liquidating them quickly.Government support for banks should not mean, however, that banks, their shareholders, and their employees should be allowed to get the benefit of permanent taxpayer subsidies.Public outrage over bankers’ bonuses is justifiable.And government regulation of bank salaries and dividends is politically legitimate, precisely because taxpayer support for troubled banks is likely to be needed again at some point.The idea that banking can be neatly divided between government-controlled deposit taking and other public utility functions (sometimes described as “utility” or “post office” banks) and totally deregulated private investment functions (the “casino” banks) is a market fundamentalist illusion characteristic of the artificial public-private dichotomies of Capitalism 3.The reality, as demonstrated by the Third World debt crisis, when the institutions that went bankrupt were all strictly regulated utility banks, is that finance always and everywhere involves a combination of the utility and the casino, of socially indispensable fiduciary functions and privately profitable speculation on unpredictable risks.Rather than trying artificially to separate out the public and private characteristics of banking, the new thinking about capitalism should acknowledge that financial institutions will always be in some sense public-private hybrids, subject to the messy confusion of political and profit-maximizing incentives that infuriated Henry Paulson and the other free-market ideologues who wanted to demolish Fannie Mae and Freddie Mac.Banks may be legally structured as private companies, answerable only to their shareholders, but they have a uniquely important social function and thus operate in the public realm, with implicit government support.Their managements, shareholders, and regulators must therefore recognize the symbiotic interdependence between private banking and government.This view of finance goes against the grain of market fundamentalist thinking, but as new, more pragmatic views of capitalism come to be accepted, financial reform and macroeconomic policy can start to be developed hand in hand.Banks can be subjected to smarter, better targeted regulations, designed to ensure that they fulfill their socially necessary functions at a reasonable taxpayer cost.And the quid pro quo for tighter financial regulation will be a greater willingness by governments to support their financial system promptly if support is required.Politicians, bankers, and shareholders will recognize that one of the main reasons for tightening regulatory structures will be to create a political climate in which governments can continue supporting weak banks with implicit subsidies and taxpayer guarantees for as long as is necessary to restore normal financial conditions and keep the world economy out of recession.This will be the surest way for Capitalism 4.0 to avoid the financial paralysis of post-bubble Japan and emerge robustly from the crisis.The Great Rebalancing of Global GrowthThe imbalances of growth and consumption—between the countries that borrowed and consumed too much during the years before the crisis and those that generated excess savings and production—are widely regarded as the most fundamental cause of the crisis.The first group of countries covers not only the United States and Britain but also Spain, France, Italy, and almost all the other countries in southern and central Europe.The second group of countries, with excess savings and large trade surpluses, is smaller in number: China, Germany, Japan, and Taiwan plus the oil exporters, including Russia [ Pobierz całość w formacie PDF ]