Hating bankers and the "Unholy Alliance" -- the long history

An excellent if brief article at Salon.com gives some useful historical context to the current animosity toward bankers -- it's nothing new. Several interesting quotes from key figures in the past:

“Behind the ostensible government sits enthroned an invisible government owing no allegiance and acknowledging no responsibility to the people. To destroy this invisible government, to befoul this unholy alliance between corrupt business and corrupt politics is the first task of statesmanship.”

Theodore Roosevelt, 1912

“We have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks. The Federal Reserve Board, a Government board, has cheated the Government of the United States and the people of the United States out of enough money to pay the national debt. The depredations and the iniquities of the Federal Reserve Board and the Federal Reserve banks acting together have cost this country enough money to pay the national debt several times over…

“Some people think the Federal Reserve Banks are United States Government institutions. They are not Government institutions. They are private credit monopolies, which prey upon the people of the United States for the benefit of themselves and their foreign customers, foreign and domestic speculator sand swindlers, and rich and predatory money lenders.”

Louis McFadden, chairman of the House Committee on Banking and Currency, 1932

I should have known this, but didn't -- the Federal Reserve Banks are not United States Government institutions. They are indeed owned by the private banks themselves, even though the Fed has control over taxpayer funds.This seems dubious in the extreme to me, although I'm sure there are many arguments to consider. Memory recalls reading arguments about the required independence of the central bank, but independence is of course not the same as "control by the private banks." Maybe we need to change the governance of the Fed and install some oversight with real power from a non-banking non-governmental element.

And my favourite:

“Banks are an almost irresistible attraction for that element of our society which seeks unearned money.”

FBI head J. Edgar Hoover, 1955.

In recent years, the attraction has been very strong indeed.

This is why knowing history is so important. Many battles have been fought before.

Stress tests?

I suspect that what goes on at the European Banking Authority is pretty much above board, in general, but still -- are the stress tests reported on here really designed to find points of potential weakness? I'm not reassured when the New York Times reports that the tests were designed in part to "restore confidence in the overall health of the European financial system." This sounds a little like a public relations angle.

Later, the article gets to the real issue: are these stress tests designed to test the banks against realistically severe scenarios, or instead to throw up some soft balls to be hit hardly so as to restore (misplaced) confidence? Kudos to the writer for including this illuminating quote:

“This year’s tests still did not include the impact of a formal debt default by a European government, which is the single greatest risk facing the European banking sector at present,” Marie Diron, an economist who advises the consulting firm Ernst & Young, wrote in a note. “The publication of these results will not assuage investors’ fears over the resilience of the E.U. banking sector,” she wrote, referring to the European Union.   

Bank runs begin in Greece and Ireland

Gavyn Davies refers to the image below, which presents a rather disturbing trend in bank deposits in Greece and Ireland. Notably, banks in these two countries in the past year or two have experienced a sharp increase in withdrawals of retail deposits:

Davies suggests they've lost 15% of their deposits, but it could be significantly worse than that -- note that the data in the figure only goes up to around December 2010. Extrapolate the trend through to today and I'm guessing the loss is approaching 30-35%.

Fully one third of the retails deposits in these two nations have been pulled out?! Yikes. Not a good sign. As Davies comments:

As the UK government found in the case of Northern Rock, the appearance of queues outside banks is one of the worst nightmares which a central bank can face. It has not happened in Europe – yet.

The Greek crisis made clear...

This is far and away the most clear explanation I've seen of what is happening in Greece and why it poses an existential threat to the European Union. (h/t The Agonist)