The credit ratings agencies have been held accountable in two private suits. Here, too, what they have paid is but a fraction of the losses that their actions caused. More important, the underlying problem — a perverse incentive system whereby they are paid by the firms that they rate — has yet to change.
Bankers boast of having paid back in full the government bailout funds that they received when the crisis erupted. They never seem to mention that anyone who got huge government loans with near-zero interest rates could have made billions simply by lending that money back to the government. Nor do they mention the costs imposed on the rest of the economy — a cumulative output loss in Europe and the US that is well in excess of US$5 trillion.
Meanwhile, those who argued that monetary policy would not suffice turned out to have been right. Yes, we were all Keynesians — but all too briefly. Fiscal stimulus was replaced by austerity, with predictable — and predicted — adverse effects on economic performance.
STILL IN RECESSION
Some in Europe are pleased that the economy may have bottomed out. With a return to output growth, the recession — defined as two consecutive quarters of economic contraction — is officially over. However, in any meaningful sense, an economy in which most people’s incomes are below their pre-2008 levels is still in recession. An economy in which 25 percent of workers (and 50 percent of young people) are unemployed — as is the case in Greece and Spain — is still in depression. Austerity has failed, and there is no prospect of a return to full employment any time soon (not surprisingly, prospects for the US, with its milder version of austerity, are better).
The financial system may be more stable than it was five years ago, but that is a low bar — back then, it was teetering on the edge of a precipice. Those in government and the financial sector who congratulate themselves on banks’ return to profitability and mild — though hard-won — regulatory improvements should focus on what still needs to be done. The glass is, at most, only a quarter full; for most people, it is three-quarters empty.
Joseph Stiglitz, a Nobel laureate in economics, is a professor at Columbia University.
Copyright: Project Syndicate