This adventure ended in the debacle of 1914. Fascism offered the most determined response to the collapse of the Enlightenment, especially of democratic socialism and progressive social reform. Fascism, on the whole, was not conservative, even if it was counter-revolutionary: it did not re-establish hereditary aristocracy or the monarchy, despite some romantic-reactionary verbiage. But it was able to undo the key regulative (or liminal) notion of modern society, that of universal citizenship. By then, governments were thought to represent and protect everybody. National or state borders defined the difference between friend and foe; foreigners could be foes, fellow citizens could not. Pace Carl Schmitt, the legal theorist of fascism and the political theologian of the Third Reich, the sovereign could not simply decide by fiat who would be friend and who would be foe. But Schmitt was right on one fundamental point: the idea of universal citizenship contains an inherent contradiction in that the dominant institution of modern society, the nation-state, is both a universalistic and a parochial (since territorial) institution. Liberal nationalism, unlike ethnicism and fascism, is limited–if you wish, tempered–universalism. Fascism put an end to this shilly-shallying: the sovereign was judge of who does and does not belong to the civic community, and citizenship became a function of his (or its) trenchant decree.
Let’s look at the facts of the financial crisis in the context of Glass-Steagall.
The first domino to nearly topple over in the financial crisis was Bear Stearns, an investment bank that had nothing to do with commercial banking. Glass-Steagall would have been irrelevant. Then came Lehman Brothers; it too was an investment bank with no commercial banking business and therefore wouldn’t have been covered by Glass-Steagall either. After them, Merrill Lynch was next — and yep, it too was an investment bank that had nothing to do with Glass-Steagall.
Next in line was the American International Group, an insurance company that was also unrelated to Glass-Steagall. While we’re at it, we should probably throw in Fannie Mae and Freddie Mac, which similarly, had nothing to do with Glass-Steagall.
Now let’s look at the major commercial banks that ran into trouble.
Let’s first take Bank of America. Its biggest problems stemmed not from investment banking or trading — though there were some losses — but from its acquisition of Countrywide Financial, the subprime lender, which made a lot of bad loans — completely permissible under Glass-Steagall.
ANDREW ROSS SORKIN in the NYTimes.
The banker holds the key—he is the “ephor of capitalism,” as Minsky’s original
dissertation advisor, Schumpeter, put it—because not only do entrepreneurs have to be sufficiently optimistic to invest, they must also find a banker willing to advance the wage bill to produce investment output. Note that this ability to force a surplus (and to accumulate capital) is separate from the issue of financing ownership of capital goods. As mentioned above, the fundamental purpose of a financial system is to support the capital development of the economy. By financing the wage bill of workers in the investment goods sector, commercial banks are promoting the capital development of the economy even if they do not actually provide finance for position-taking in investment goods. Hence, we can separate the issue of producing capital goods from ownership of them. For Schumpeter, and for Minsky, the “ephor of capitalism” breaks the simple circuit of production and consumption of wage goods—in which banks simply finance production of consumer goods by workers whose consumption exactly exhausts the wage bill required to produce them. In other words, the ephor allows production of profits by financing spending by those not directly involved in producing consumption goods. These profits are “saved” in the form of accumulated capital goodsL. Rrandall Wray What Do Banks Do? What Should Banks Do?
Levy Economics Institute of Bard College
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