Clearly, No-one Was Thinking (part 2)

If there’s one thing to be learned from observing the media and political bubble, is that there is such a thing as too much agreement. When the SoManyPeopleCan’tBeWrong ™ effect kicks in, this should generally trigger a mass hysteria alert. Which is what happened the other week when Bank of Slovenia, the nation’s chief banking regulator tightened the screws on household borrowing.

This caused an uproar in Muddy Hollows, with everyone from Banking Association and youth organisations to the politicians and the media slammed the BS for their supposedly heartless and unnecessarily harsh move. It must have felt good to be a part of the crowd.

As a rule, banks and their customers should never be on the same side. The former are in the business of earning as much as legally possible by lending money, while the latter are looking to pay as little as legally possible for borrowing that money. And when the two sides are pushing the same narrative, someone in that equation is the turkey voting for Christmas. And it sure as fuck ain’t the banks who play that role.

But the hysterics of the moment conflated everything into convenient sound-bites, without attention to detail.

From the get-go, Bank of Slovenia was clear that the move by far and large impacts only rules for personal loans which have seen increases in both money lent and duration of the repayment period. And yet, somehow, this was interpreted as a virtual ban of granting mortgages for first-time buyers, which sent a lot of people into a frenzy.

Soon, there was a sort of competition underway in who gets to bash the regulator more creatively. Obviously, the political class got in on the act.

For their part the Bank of Slovenia have been uncharacteristically straightforward in their reasoning. They’ve even held a separate press conference where they cleared the air, reiterated the point that the whole thing is not about mortgages and painted a not-so pretty picture of the consumer loan sector.

Bottom line: the central bank was screaming at the commercial banks to rein in their consumer loans for the past three years. But seeing as the banks were doing the exact opposite, prolonging repayment periods and even pushing people into more expensive consumer loans where cheaper mortgages were an option, screws were tightened.

But this post is not really about the move by the regulator. It is about how the political class handled it and what the reaction feeds into.

Coalition parties and their estranged partner were stepping over one another, trying to deliver the most forceful condemnation of the move. By virtue of his position, the prize in the end went to PM Marjan Šarec and his LMŠ party who have called upon the Bank of Slovenia to “rethink the move”, while Šarec himself went after the bank’s governor Boštjan Vasle, saying that Vasle has a history of being an economic pessimist and and that he should take a step back and show that he cares about what the government and the people have to say about this.

This, of course, should set off a second, much more forceful set of alarms.

The independence of the central bank is set in legal texts and the breadth of its autonomy is vast. It is no hard task imagining it as a co-equal branch of power, at least in monetary and financial matters. In fact, while the finance minister does get to sit on the board of the Slovenian central bank, he doesn’t get to vote on the measures.

When the parliament passes a decision, the government accepts it and acts accordingly. Granted, most of the time the decision is in government’s favour, but still. And when a court passes a politically important ruling, it is considered unacceptable for the political class to debate or oppose the decision.

The fact that the latter is happening regardless, tells you a lot about the state of public debate in Muddy Hollows.

However, as a rule, no branch of government does not call upon the other two to “rethink” their decisions. They use whatever legal and procedural tools are at their disposal. And where there are none, they shut the fuck up.

One therefore wonders just why did the PM and other senior politicians felt the need to go after the central bankers? There are two possibilities, each more troubling than the other.

On one hand, senior coalition politicians don’t really understand the essence of separation of powers. They either come from local political environments, where mayors reign supreme and separation of powers is more of a theoretical concept, or their political creed was formed during the crisis when the decision-making process was (for better or for worse) much more reactive and about surviving from one day to the next.

While both of these are/were useful in their respective contexts, neither is particularly useful on the national level of a (more or less) functioning democracy where procedures matter just as much as substance.

On the other hand, it is entirely possible that Šarec & Co. were counting on Bank of Slovenia to give a grand total of zero fucks about what they think and went full-blast against the regulator knowing it will have no effect.

Knowing this they could jump on the pearl-clutching bandwagon, join the people in ripping a new one to the Bank of Slovenia, and being populist AF in general.

As a side-note: The right-wing opposition, notably the SDS fared rather better in this particular exercise: while being there was a tinge of criticism of the central bank, they’ve come up with a legislative initiative to help alleviate the housing shortage for first time buyers. Needless to say the proposal won’t ever get off the ground and is most likely unworkable in practice, but they managed to put a positive spin on things and in the world of soundbites that is all that matters. It is as if they’ve been playing this game for a long time.

The problem with the approach Bratušek and those around them took, however is that it does have an effect as well. Shooting from the hip, glossing over details and generally not letting facts get in a way of a good story further undermines the position and authority of basic institutions of this country.

Just as claiming that the courts are riddled with bent and politically appointed judges, that the parliament is an ineffective band of good-for-nothing insignificunts, that the government is a inept marionette of communist grafters and that the media are just a tool of the elite and the deep state (all of which was and is inevitably claimed at some point in any given public debate), so too does slamming the Bank of Slovenia for doing what is in essence their job description (i.e., regulating banks) further erode not just public trust and reinforces cynicism, it also opens up pathways for further political pressure by other players at some point in the future. And with the inevitable economic downturn happening sooner rather than later, that is not a prospect to look forward to.

Clearly, no-one was thinking.