There is a school of thought exemplified by French economist Thomas Piketty that one should never neglect the political dimension in economics. The collapse and bailout of Credit Suisse certainly seems to confirm that.
After all, one regulatory failure might be an accident. Two in a row looks like carelessness. The Swiss authorities have had more than a couple of warnings and opportunities about the deep and persistent internal problems at Credit Suisse. Multiple efforts to fix these went nowhere, which makes you wonder about the competence and resolution with which they were undertaken in the first place. But the final fix looks worse.
Evoking emergency powers obviously not intended to apply to the financial sector may be one way to get a quick fix done. But it throws open huge questions about the rule of law and the consistency of financial regulations, and has drawn a deluge of fully justified criticism. No wonder the European Union and other regulators have distanced themselves from any similar moves in their own jurisdictions.
Switzerland’s seeming inability to fix glaring cultural shortcomings at its second largest bank are a big demerit against its whole ability to regulate the financial sector in the first place. The manner in which the Credit Suisse issue was resolved has reinforced doubts and concerns about that area.
The country is facing challenges to its long cherished stances on multiple fronts, and its response to them so far has been characterised by principle-free expediency and drift, calling into question its vaunted commitment to democracy and the rule of law. It has failed to resolve its partnership with the European Union. It has also lost its neutral status in the eyes of Russia, while simultaneously using this status to deny strategic support to Ukraine. It is failing policy challenges on vital areas for its own citizens, such as pensions.
The wholesale failure of political will and imagination across the board is atrocious.
And now, in order to fix the Credit Suisse situation, it seems to have sacrificed its reputation, especially in Asia, as a safe haven for investor money.
This may stand as a salutary warning about what insularity and an inbred establishment can do to a country. It should be a warning to foreign investors looking to park any of their money there. It’s less clear whether it will help save Switzerland itself.
