Marc Chesney Warns Against Financial Blowout and Argues for Glass-Steagall
April 7 , 2021 (EIRNS)—Marc Chesney, head of department of banking and finance at Zurich University, warned about a coming blowout of the financial system and called for re-introduction of bank separation (Glass-Steagall). Chesney was interviewed on April 3 by the Swiss daily Tagesanzeiger on the Credit Suisse crisis. Professor Chesney is a frequent speaker at events organized by Impulswelle, friends of the Schiller Institute in Switzerland.
Credit Suisse’s current troubles are “a new episode of the permanent crisis of the financial gambling casino. There are more and less acute phases and then, such episodes occur as if out of nothing. It is very opaque but we, the citizens, should know what is going on. Credit Suisse is systemically relevant, and therefore it has a responsibility towards the taxpayer.
“The mixture of high debt and derivatives is the recipe for acute crises; it was so in 2008, and it is still the case, regularly.”
The bank’s justification for derivative contracts as insurance against risk “is a bad joke. The nominal value of derivatives in Switzerland was 26,000 times the GDP last autumn. How can one believe that bank customers in Switzerland must cover risks for 26,000 times the national output?”
Chesney proposed that the use of derivatives be restricted only to those who really need insurance, similar to car insurance. You don’t insure the car of your neighbor, and you don’t bet that he has a car accident.
Asked what else he would propose, Chesney said:
“We need smaller banks and, like previously in the U.S.A., a separation between pure deposit banks and investment banks. Then, banks that go into high risk can go bankrupt with a minor danger for the rest of the economy. But the 30 largest world banks are principally convinced that they will never go bankrupt, because they must be bailed out. This fuels the false incentive to go into higher and higher risk at the taxpayers’ cost.”
Chesney also exposes the scandalous gap between the super-rich and increased poverty in the world. To make his point, he said that in a single day, Jeff Bezos will become richer by $13 billion. This is double what 1.3 billion Africans have earned that same day. (Chesney’s [known] weak point is environmentalism.) “A blowout is probable. The main indicators are in red: environment, pandemics, instability on the financial markets, social injustice, poverty. We need now to solve not only the effects of the pandemic or of the crisis, but we must recognize the grounds behind it.”