Having mutuals in the banking system might be a good idea for all sorts of reasons. But not perhaps for the reason that so many here claim.
Wh8ich is, of course, that mutuals wouldn\’t have gone so gung ho into excessive housing finance and thus wouldn\’t have pumped up the bubble that led to the crash.
This is hard to support for two reasons. One, that various mutuals in the UK did do exactly that and then go bust. The second is the situation in Spain:
Spaniards had been outraged at the €1m payoffs at bankrupt savings banks where executives had approved giant payments for themselves if they were laid off.
The fact that taxpayers would, in effect, be paying these to the executives who bankrupted Caja de Ahorros del Mediterráneo or Caja Castilla La Mancha – both of which needed rescuing – had added insult to injury for Spaniards suffering 23% unemployment and a double-dip recession.
That recession was caused, in part, by a housing bubble pumped up by loans from those same banks that now need taxpayer help.
All of those Cajas are mutuals. They\’re all run by the local great and the good (yes, including union peeps) and they\’re all supposed to take local interests to heart. Exactly what peeps over here claim would make sure that such mutuals don\’t do…..exactly what the Spanish mutuals did do.
Pump up the boom, go bust and hand out large rewards for failure.
It\’s a lovely example of the way in which the principal/agent problem and public choice theory are really the same thing. People are in matters economic eonomic animals. People do, without being restricted, help themselves to chunks of other peoples\’ money when they get the chance. Whether they\’re bureaucrats or politicians inside government, the great and the good running mutual banks or executives working for shareholders.
The incentives are the same so the behaviour is too. Politicians are motivated by the next election just as much as executives are by the next reporting season and bonuses…..