The Fine Art And The Deep Value Of Banking

While the smart guys of moral hazard are riding the waves of it for some time, the academia indeed seems to be waking up. Axel Leijonhufvud has a nice post Shell game: Zero-interest policies as hidden subsidies to bank. Here are some paragraphs worth pointing out:

The two pioneers of modern monetary economics – Irving Fisher and Knut Wicksell – were passionately concerned to find monetary arrangements that would insure against arbitrary redistributions of income and wealth. They saw such distributive effects as offenses against social justice and consequently as a threat to social and political stability.

Are these sentences worth keeping in mind when arguing about the sustainability? Well, the case is rather clear and applicable to whatever country, including Spain:

* The Fed is supplying the banks with reserves at a near-zero rate. Not much results in bank lending to business, but banks can buy Treasuries that pay 3% to 4%.

* This hefty subsidy to the banking system is ultimately borne by taxpayers. Neither the subsidy, nor the tax liability has been voted for by Congress.

However, it is all about "arbitrary redistributions of income and wealth":

* The bailouts of the banks during the crisis were clear for all to see and caused widespread outrage; now the public is being told that they are being repaid at no cost to the taxpayer.

* What the public is not told is that the repayments come to a substantial extent out of revenues paid by taxpayers for the banks to hold Treasuries.
* Both parties supported the bailouts so neither party seems ready to protest the claim that they are being repaid at no cost to taxpayers.

I am wondering is there a way to return to normal interest rates at all? I do not see how this ends well either, but cream lickers at efficient frontiers will sing the song of victory!