What do Americans think about Obama’s policies towards banks? Are they a realistic approach dictated by necessity (a bit like Roosevelt’s New Deal) or rather a disguised state intervention plan aimed at taking control of the economy?
American opinion is very much divided on these questions. There is great anger at the major financial institutions, but also great concern about the expanding recession. The President, and many commentators across the political spectrum have indicated a resigned reluctance to the necessity of many of these policies, and to an extent I believe the American people are willing to accept these claims.

Those inclined toward conspiracy theories believe the government is attempting to take permanent control over broad swaths of the economy with these financial interventions. However, neither the President nor his representatives, the Congress in the main, nor the Federal Reserve have indicated any illusions that permanent control would be wrong. Unfortunately, while worrying needlessly about permanent nationalization of our financial system, the American people are largely ignoring the stated intention of the President and many in the Congress to take major steps toward permanent government-run health care in the United States.

Apparently, the colossal expenditure towards saving banks from bankruptcy has been assessed at 10 percent of U.S. debt. Is this regarded as a virtual nationalization of banks? How will it affect their administration?
The federal government, through the Treasury, the Federal Reserve, and the FDIC, have injected enormous sums into the financial system. In some cases, the government has taken actual or de facto control of the institutions with these injections. Examples include Fannie Mae, Freddie Mac, AIG, General Motors, and Chrysler. With the exception of Fannie Mae and Freddie Mac, however, there is no question at this time but that these examples of nationalization will be temporary.

In terms of government control, each case is different. Fannie Mae and Freddie Mac are under explicit and full daily control of the government through their regulator. AIG is similarly under control of the government, though it operates largely independently. General Motors and Chrysler are operating independently, but with very short leashes, and with the traditional exception that the government as lender of final resort has replaced senior management at GM.

The major banks, on the other hand, are always under government control to an extent through the government’s supervisory powers. This control has been increased with the injection of government capital. The banks remain under a heightened state of direct government control only so long as they retain the capital injections, and the banks are expected to begin ridding themselves of government capital within the next few weeks.

Talking of the executives: what is your opinion on the predictable controversy over the bonuses totalling hundreds of millions of dollars paid out to finance executives? As liberals, we are not easily shocked: if somebody gives a considerable amount of money to someone else, it usually means that they exact a compensation. But did he, who gave hundreds of millions of dollars to single individuals, pay out of his own pocket or was he involved in a conflict of interests? Or did he give that money out to achieve something illegal at the taxpayers’ expense?
The payment of bonuses has triggered two debates. The first, which is a passing event, is the matter of bonus compensation paid to employees at companies in bankruptcy and under federal control. As it turns out, in the case of the bonuses paid to AIG executives, these bonuses were contractual obligations and, from a purely economic perspective, were likely appropriate even ex ante in that the individuals involved had specific expertise of enormous value for which they had every reason to claim compensation. Many of the executives in question have since repaid or donated the bonus money and quit the company, a series of events which is very likely to cost the taxpayers many tens of billions of dollars.

The second debate is the broader question of executive compensation throughout the financial service sector, and indeed throughout the economy. The tendency of classical liberals is to defend these payments as the natural outcomes of dynamic free market processes. That tendency is almost surely misplaced in this case because the processes that determine these compensation levels are largely formed and defined by a myriad of government regulatory policies that have distorted the market. Government policies with respect to corporate governance are especially at fault for distorting the compensation paid to top executives.

Apparently, at least 200 top finance and management U.S. executives caused the financial disaster which had a dramatic impact on U.S. economy at first and on the whole world’s economy later. It seems that, to come to such a disaster with “derivatives” and other incomprehensible financial instruments, also non-political crimes such as fraud and false communication have been perpetrated. Nevertheless, public attorneys seem not to have taken any appropriate action. And why, in your opinion, didn’t ordinary financial controllers such as SEC commissioners or the Federal Reserve Bank step in to stop activities that had been regarded as fraudulent by careful and sensible people for years?
The notion that a few score, or a few hundred individuals in the U.S. led to the current global financial contagion and recession is one of the enduring fables of the times. While prevalent in the United States, this fable seems to be told most consistently in Europe as a means of suggesting that Europeans are without fault.

On the one hand, financial executives did not cause individuals to buy homes they could not afford, or cause mortgage brokers to make loans with little chance of repayment, or cause small towns in Norway to invest public pension funds into the resulting complex securities.

Nor were these failings restricted to the United States. Housing booms and busts also occurred in the U.K., Ireland, and Spain, and we are now learning of similar booms and busts in much of emerging East Europe.

More critically, we are seeing a global financial contagion and a global recession. Nation-specific factors contribute to troubles in nation-specific ways, but the true causes must be global in nature, not specific.

How will the U.S.A. come out of this situation, considering all the dollars in circulation? Where will they find an adequate monetary compensation for all this money - considering that it is seems not to be available at the moment?
The U.S. economy will likely begin to recover in late 2009 or early in 2010. However, it will do so in the face of a steady headwind from persistent economic weakness in much of Europe and Asia. Sometime toward the fall of 2010 the Federal Reserve will need to begin tightening monetary policy considerably to prevent the recent massive injections of liquidity from triggering a rapid acceleration of inflation. These actions by the Fed are likely to trigger yet another sharp recession in mid to late 2011. Fortunately, the economy is likely to embark on a period of especially strong, sustained growth thereafter as it absorbs underemployed resources.

The wildcard in this rough forecast is Obama Administration policies. If the Obama Administration proceed with their plans for massive debt issuance, then global interest rates are likely to increase significantly, thus choking off global recovery. If they proceed with their plans for higher income tax rates, this will also slow the recovery in the U.S. If they proceed with their massive tax hikes and government manipulation of the economy under the guise of environmental policy, then true recovery may be many years waiting.

To which extent do you think bankers and European government leaders (and their monitoring authorities) are responsible for this financial catastrophe?
Financial intermediaries acted as intermediaries of massive capital flows. The primary issue is the source of the capital, not the intermediation of that capital. However, financial executives along with investors and regulators globally made a critical error in believing their own press clippings about their ability to identify, manage, and in some cases profit from systemic risk. It turns out there were critical, fundamental risks that both market participants and regulators failed entirely to recognize and react to. The world, it turns out, was far more complex than they imagined, or prepared for.

How do you judge the last Obama’s campaign against the so called “fiscal paradises”? Does it exist a difference between illegal money-export and normal investment abroad? In general, is it possible to justify the competition among different fiscal policies in different States?
Tax evasion is a legitimate concern for any government. It is an affront to the rule of law, and to other citizens who pay their taxes under the law. However, efforts to address tax evasion should never be confused with efforts to protect anti-competitive high-tax regimes that drive productive activities to lower tax regimes. Nations compete on many bases in international commerce. They compete on the basis of their natural resources, the work ethic of their people, their locations, their legal and regulatory frameworks in presenting suitable economic environments, and their flexibility and cost structures.
Nations also compete on the extent to which their governments claim a share of the value of a person’s or a firm’s production. Tax competition is a fact of life, and a beneficial natural economic constraint on the tendency of government powers to expand at the expense of individual liberties.

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