In a surprise announcement early this morning, the 2011 Nobel Peace Prize and the Nobel Prize for Economics (strictly speaking: “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel”) were simultaneously awarded to the Institute of International Finance (IIF), “the world’s only global association of financial institutions”.
This is the first time the Economics Prize has been awarded to an organization – although the Peace Prize has been received by various institutions (including the Intergovernmental Panel on Climate Change, the International Atomic Energy Agency, and Lord Boyd Orr – in part for his work with the Food and Agriculture Organization).
In its citation for the economics prize, the Royal Swedish Academy of Sciences said the IIF won for its work on capital requirements for banks, which proved that requiring banks to fund themselves with positive equity – and therefore have any kind of buffer against insolvency – would limit credit, be very bad for economic growth, and generally make all consumers less happy. Based on this single remarkable paper, the IIF earned the prize for its:
“achievements in the fields of consumption analysis, monetary history and for its demonstration of the complexity of stabilization policy.”
Put more simply, the IIF’s results showed that basic economics, modern finance, and pretty much all contemporary econometrics are completely wrong. (See also this comment by Paul Pfleiderer of Stanford University.)
The Norwegian Nobel Committee, awarders of the peace prize, mentioned more broadly the IIF’s
Reaction to the prize was mixed, with the IIF itself seeming to feel that the financial sector was again under threat. Charles Dallara, managing director of the Institute, immediately wrote to the G20 that he “sees no merit in the idea that any levy on the [Nobel Prize] should be paid into general revenue” (see “A Fair and Substantial Contribution by the Financial Sector: Preliminary Industry Comment,” on the IIF website.)
Josef Ackermann, CEO of Deutsche Bank and chair of the IIF’s board, is – by way of celebration – reported to be revising his group’s return-on-equity goal up significantly (from 20-25 percent where it currently stands for the corporate and investment banking division). Presumably the return on zero equity will be substantial, at least in good years.
And Douglas Flint, Group Chairman of HSBC and also an Institute board member, is being even more assertive – pushing immediately for negative capital requirements for systemically important financial institutions. If these are not granted at once in London, he is apparently threatening to move his bank to Sweden.
The U.S. Treasury will no doubt welcome the clarity provided by these prizes for the department’s own internal debates. Secretary Tim Geithner has done very little about seriously raising capital requirements, while endorsing higher capital in general terms – including in his testimony to Congress in early 2009.
“Sec. GEITHNER: The most simple way to frame it is capital, capital, capital. Capital sets the amount of risk you can take overall. Capital assures you have big enough cushions to absorb extreme shocks. You want capital requirements to be designed so that, given how uncertain we are about the future of the world, given how much ignorance we fundamentally have about some elements of risk that, there is a much greater cushion to absorb loss and to save us from the consequences of mistaken judgment and uncertainty in the world.”
Now the banks have been proved right, the Treasury Department’s lack of effort on really making the financial sector safer seems more justified. As a senior offical told John Heilemann of New York magazine,
“If we’d been for it, it probably would have happened. But we weren’t, so it didn’t.”
We’re not backing down in the face of Trump’s threats.
As Donald Trump is inaugurated a second time, independent media organizations are faced with urgent mandates: Tell the truth more loudly than ever before. Do that work even as our standard modes of distribution (such as social media platforms) are being manipulated and curtailed by forces of fascist repression and ruthless capitalism. Do that work even as journalism and journalists face targeted attacks, including from the government itself. And do that work in community, never forgetting that we’re not shouting into a faceless void – we’re reaching out to real people amid a life-threatening political climate.
Our task is formidable, and it requires us to ground ourselves in our principles, remind ourselves of our utility, dig in and commit.
As a dizzying number of corporate news organizations – either through need or greed – rush to implement new ways to further monetize their content, and others acquiesce to Trump’s wishes, now is a time for movement media-makers to double down on community-first models.
At Truthout, we are reaffirming our commitments on this front: We won’t run ads or have a paywall because we believe that everyone should have access to information, and that access should exist without barriers and free of distractions from craven corporate interests. We recognize the implications for democracy when information-seekers click a link only to find the article trapped behind a paywall or buried on a page with dozens of invasive ads. The laws of capitalism dictate an unending increase in monetization, and much of the media simply follows those laws. Truthout and many of our peers are dedicating ourselves to following other paths – a commitment which feels vital in a moment when corporations are evermore overtly embedded in government.
Over 80 percent of Truthout‘s funding comes from small individual donations from our community of readers, and the remaining 20 percent comes from a handful of social justice-oriented foundations. Over a third of our total budget is supported by recurring monthly donors, many of whom give because they want to help us keep Truthout barrier-free for everyone.
You can help by giving today. Whether you can make a small monthly donation or a larger gift, Truthout only works with your support.