The Ethics of Banking: Conclusions from the Financial Crisis (Issues ...

From Big Bang Deregulation to Big Bailout 167
a fusion of the bank’s disinterest in subjecting the debtor to monitoring, and the
psychologically understandable but economically harmful disinterest of the debtor
in being subjected by the lender to monitoring of his performance and servicing of
the loan.
The function of the bank to exert discipline over the debtor lapses due to the conflict
between both parties’ disinterest in monitoring the debt and the interest of the
economic system in doing so. This “conflict of disinterest” is caused by the disinterest
of both lender and borrower in any monitoring of the loan actually taking place.
Both sides have a disinterest in the kind of disciplining that is necessary for the efficiency
of the credit industry and of capital allocation. The efficiency of the credit
system as a whole is damaged by the conflict between the bank’s and the debtor’s
disinterest in monitoring and the interest of the financial system in such monitoring.
If we agree with Hans Albert that the price system of the goods market can be seen
as a disciplining system, 29 this applies all the more to the interest-rate system of the
credit market. Interest is a disciplining instrument, which disciplines both creditor
and debtor. Without it, credit discipline is dealt a severe body-blow. If too much of
this is meted out, it will cripple the efficiency of the financial system. The policy
of easy money with extremely low interest rates and lax debtor monitoring leads to
indiscipline and inefficiency in the credit market. It gives banks and debtors undue
license for self-indulgence.
From Big Bang Deregulation to Big Bailout, or: How
Deregulation Ended in the Largest State Bailout
of Banks in History
The financial crisis led to the biggest state bailout in history, or at least the biggest
ever state bailout of distressed banks. 30 The liability for the economic failure, particularly
of the American banks, was transferred to the taxpayer. The repercussions for
the understanding of liability in business will be considerable. The disappearance of
the banks from the market was prevented by the state bailout, in a situation in which
the banks were de facto bankrupt. The result of this bailout policy is that the full
extent of the business failure and its full consequences did not become visible, and
hence the lessons were not learned to their full extent, because the state covered up
the business failure of banks by stepping in with the bailout.
The state bailouts of the banks are not bail bonds posted by the accused themselves,
but bailouts that the state, effectively the prosecutor and judge, is paying
for the accused, the insolvent banks. To some degree these bailouts imply that the
29 HANS ALBERT: Marktsoziologie und Entscheidungslogik [Market sociology and decision logic],
Neuwied (Luchterhand) 1967, pp. 66 f.
30 Although perhaps the German unification project was and is an even bigger state bailout – for
the eastern part of the country.