Every time there is a financial problem, or a crisis in the capital market, apocalyptic voices are raised predicting the end of a “cruel system”, a “scrambling” system and many other similar phrases.

This time, the problem of the Silicon Valley bank, and then other banks in the United States, and the drop in Credit Suisse shares and fears for other European banks, caused cries of terror that multiplied.

Worried about banks in the US?

And those who think the most are those who have Marxist dogma on one side or libertarian extremism on the other. For the former, the aberrations of the capitalist world mean that “this time the system will come to an end as we knew it would happen”, for the latter, after abandoning the gold standard and establishing a fractional banking system, i.e. one in which part of the deposits can be kept in liquidity, and borrow the rest, produced an inevitable tragedy.

How useful is economic history. Under the gold standard, before Marx, and as long as it lasted after Marx, global financial crises and recessions were far more severe and frequent than in 2008 or today. And the market system, often aided by those who make monetary policy (admittedly many times without regard to who pays the bill), has fulfilled the role of driving the system forward.

Control of banking crises

(…) Those who have Marxist dogma on the one hand or libertarian extremism on the other think the most.

Marxists, who predicted the end of the market system, must remember that the system that ended was theirs, that of the Union of Soviet Socialist Republics (USSR), and that Marxist China is more capitalist than China today.

Libertarians must realize that without the fractional banking system, world growth would be much less than it has been in the last 100 years. The cost of facing a crisis from time to time is much less than the cost of poverty.

A big problem in recent decades is the misunderstanding of banks and regulators, that interest rates were falling, and that structurally in the West, due to the inversion of the population pyramid, and the endowment of capital per inhabitant, the demand for loans is not growing, making it impossible to raise interest rates. So, just as banks invented mortgage securitization and inflating their balance sheets in the years before the real estate bubble until it finally burst, these years they devoted themselves to lending at fixed or variable rates, which could be revised every number of years. which are “semi-fixed”. This plus the purchase of government securities at a fixed rate had an implicit risk, which was not seen. The rate has been raised and the consequences are there.

But there will be a solution again. And you will learn to have better banking regulation, in increasingly complex scenarios of the world, and to have better practices and risk management.

The system will not end as Marx predicted, and frustrated Marxists and liberal extremists will see that the world will not unfold according to their models. (OR)