Tuesday, November 20, 2012

An explanation for why the Swedish Model has not been adopted yet

I thought readers might be interested in the following from a post from Jesse's Café Américain.  

He provides a possible explanation for why global policy makers have continued to pursue the Japanese Model for handling a bank solvency led financial crisis long after it has been shown not to work and why they have been so reluctant to adopt the Swedish Model and effectively bring an end to the current financial crisis.

A credibility trap occurs when the regulatory, political and informational functions of a society have been compromised by corruption and fraud, so that the leadership cannot effectively reform or even honestly address the situation without impairing and implicating, at least incidentally, a broad swath of the power structure, including themselves.

The status quo tolerates the corruption and the fraud because they have profited at least indirectly from it, and would like to continue to do so. Even relatively honest reformers within the power structure become susceptible to various forms of soft blackmail and coercion.

And so a failed policy and its support system become almost self-sustaining, long after it is seen by the people to have failed, and in failing become counterproductive. Admitting failure is not an option for those who receive their power from that system.

The continuity of the structural hierarchy must therefore be maintained at all costs, even to the point of becoming a painfully obvious hypocrisy.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery.

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