Joseph Stiglitz: Banks’ Behavior Inconsistent with Public Interest

Nobel Prize-winning economist Joseph Stiglitz recently explained his views on the banking crisis in an interview with Deutsche Welle. “Any system where there is a separation of ownership and control is a recipe for disaster,” said Stiglitz. “That's why you see the banks’ behavior which seems so inconsistent with the public interest.”

He went on to say that the banks’ interests do not coincide with the national interest and that “there is no easy way for these institutions to reconcile this incompatibility, this inconsistency other than nationalization. So, I think that is a model that has worked. It worked in Sweden. It is not a permanent nationalization.”

“The fact is that these banks are effectively bankrupt and in that case we have to financially restructure them,” he said. “If they can't exist without a government bailout it's very clear they should be dealt with differently than we have been doing so far.”

Speaking about helping developing countries that might be on the verge of collapse, Stiglitz said: “I think it is absolutely imperative not just for the interest of these countries, not just from a humanitarian perspective, but from the perspective of global stability. It is not possible to have a strong global economy when there are large pockets of economic turmoil.”

Stiglitz said that Chancellor Merkel’s idea of creating an international economic council was very important. “You need to have coordination of global economic policy that goes beyond the IMF which has failed and the World Bank,” he said. “I think the reality that countries are going to have to face is that you cannot say that we have open borders without global regulation. It is inconceivable as we go forward that we would allow financial products that are risky, manufactured in countries with inadequate regulation to come in without regulation in the United States and vice versa for other countries.”

Stiglitz was awarded the Nobel Prize in economics in 2001. He was Chief Economist of the World Bank from 1997-2000 and was a lead author of the 1995 Report of the Intergovernmental Panel on Climate Change, which shared the 2007 Nobel Peace Prize. He is currently a professor at Columbia University in New York.

February 6, 2009