The OECD and TBTF.

Bill Mitchell has pointed to some of the nonsense emanating from the OECD, e.g. here and here. As Bill rightly points out, the levels of incompetence in the OECD and IMF are such that they ought to be closed down.

Another bit OECD incompetence which I’ve just stumbled across is their claim that New Zealand should provide bank depositors with a guarantee.

That bank depositors are entitled to a taxpayer backed guarantee is of course very much the conventional wisdom. It’s something nearly every country provides. If the conventional wisdom in the West in 2013 dictated that we should build muli million ton pyramids to bury dead kings and queens in a la ancient Egypt, do doubt the OECD would back that as well.

But there’s a big problem with that guarantee: it amounts to a subsidy of banking. And if there’s one thing we’re all agreed on (OECD included), it’s that bank subsidies (the TBTF subsidy included) should be disposed of.

So what ideas do we get from the OECD on the subject of disposing of bank subsidies? Well, as you might expect, we get a series of long and sleep inducing papers on the subject. Got to keep themselves employed and justify their salaries, haven’t they? As to IDEAS, the silence is deafening.

So my advice to New Zealand is: “stick to your guns and give the OECD a two fingered salute”.

Anyway, how do we reconcile the apparently irreconcilable: the undesirability of on the one hand taxpayer backed guarantees for depositors and bank subsidies and on the other the desire to provide depositors with a safe way of storing their money?

Well it’s all been worked out, probably unbeknown to the OECD, here, here and here.

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P.S. (25^th Aug 2013). Some unflattering remarks about some IMF authors by Paul Krugman here.