Busting the Bankers’ Club: Unveiling the Dangers of the Financial System and the Rise of Cryptocurrency

Renowned economist Gerald Epstein discusses the impact of financialization, the flaws of the current banking system, and the potential risks of cryptocurrency in his groundbreaking book.

In his new book, “Busting the Bankers’ Club: Finance for the Rest of Us,” progressive economist Gerald Epstein sheds light on the Jekyll-Hyde personality of the financial system. While finance plays a vital role in facilitating economic transactions and providing essential services, it is also prone to reckless behavior and exploitation. Epstein delves into the history of financialization, the breakdown of the New Deal financial structure, and the rise of the “roaring banking” business model. Moreover, he warns of the potential dangers posed by the recent approval of bitcoin exchange-traded funds by the Securities and Exchange Commission (SEC).

Financialization and the Jekyll-Hyde Nature of Finance

Epstein introduces the concept of financialization, which refers to the increasing dominance of financial markets and incentives in the global economy. He compares the financial system to the characters of Dr. Jekyll and Mr. Hyde, highlighting the positive aspects such as facilitating payments, providing savings options, and offering insurance. However, he also emphasizes the negative side, driven by greed and excess, which can lead to instability and crises.

The Stability of the New Deal Financial Structure

Epstein acknowledges the period of financial tranquility in the United States between World War II and 1980. He attributes this stability to the New Deal financial regulations implemented in response to the Great Depression. These regulations focused on limiting speculation, separating investment from commercial banking, and imposing social missions on various segments of finance. While not perfect, this structure provided credit for businesses and households and facilitated economic growth.

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The Breakdown of the New Deal Financial Structure

Epstein explores the factors that led to the breakdown of the New Deal financial structure in the late 1960s and early 1970s. Globalization, increased competition, and inflation created challenges for U.S. banks, which sought greater flexibility to compete with foreign rivals. The big banks seized this opportunity to dismantle the New Deal system entirely, forming what Epstein refers to as “The Bankers’ Club.”

The Rise of “Roaring Banking”

Epstein describes the new business model adopted by the financial system after the breakdown of the New Deal structure. Large universal banks, asset managers, hedge funds, and private equity firms dominate the industry. These institutions engage in high-risk speculative ventures, exploit their quasi-monopoly power, and extract enormous wealth from customers and employees. The beneficiaries of this model are primarily the elites, contributing to growing income and wealth inequality.

The Problem of Bailouts

Epstein highlights the issue of government bailouts, which have become the norm under the deregulatory financial system. He argues that while some institutions may need to be bailed out to maintain financial stability, it is crucial not to reward the bad behavior of bankers. Bailouts create moral hazard, discourage risk management, and perpetuate the concentration of power in the hands of elites.

Are Bankers Essential Workers?

Epstein challenges the notion that bankers are essential workers. While some bankers may argue that they contribute to economic growth, he argues that the current financial system is a net drain on the economy. The practices of mega bankers, hedge fund operators, and private equity executives reduce economic growth and exacerbate income and wealth inequality.

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The Approval of Bitcoin Exchange-Traded Funds

Epstein raises concerns about the recent approval of bitcoin exchange-traded funds by the SEC. He highlights the lack of regulation and transparency in the cryptocurrency market, citing potential risks such as money laundering, fraud, and illegal activities. Drawing parallels to the deregulation of derivatives before the 2008 financial crisis, he warns that this approval could set a dangerous precedent.

Conclusion:

Gerald Epstein’s book, “Busting the Bankers’ Club: Finance for the Rest of Us,” provides a comprehensive analysis of the financial system’s flaws and the dangers of financialization. Epstein emphasizes the need for a system of finance that works for the average people, rather than benefiting only the elites. With the recent approval of bitcoin exchange-traded funds, the potential risks and implications for the global money system must be carefully considered. As the financial landscape continues to evolve, it is essential to strike a balance between innovation and regulation to ensure stability and fairness for all.