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Thursday, 11 February 2010

Greece must be the catalyst to reform the banks

I've long held that a government's - the taxpayer's - liability towards banks should extend only to underwriting domestic retail and commercial business, leaving the whole buccaneer banking business to survive or fail on its own merits, paying whatever bonuses it wishes, but without the hope of a penny of tax bailout. Brown first missed his chance to split the banks in 2008; another chance has arisen, but I don't believe 'bottler' Brown will take it.

There's a whip-round going on to bail out the feckless Greeks, but Greece's fellow eurozone nations are unwilling to put up all the cash themselves. The EU can force the UK to contribute under existing EU legislation - and we pay 20% of the EU bill, so our contribution could be substantial.

Brown's position is that either the eurozone countries should pay - or the G20 nations. And the reason is the banks. You see, our gormless buccaneer banks have lent £250bn to the PIGS (Portugal, Ireland, Italy, Greece and Spain) and if Greece goes bust, they will default on the debt, and the banks will come running to Gordon for more tax money to save them. And other G20 nations such as the Swissies are just as badly exposed.

Enough is enough. No more money for the banks; no more money to prop up the euro. It's time to split the banks, let the overexposed buccaneers fail and save the retail parts. Let them go. It's also time to let the French and Germans either crap or get off the pot - let Greece go or pay its debts. But not a penny more in my name.


Anonymous said...

The guarantees are the problem; they are in themselves a huge subsidy to the banks. They are rarely spoken of that way, they are presented as being for the good of the depositors, but if guarantees like that were provided on a commercial basis they would be quite expensive. And they mean that banks can borrow for their inherently somewhat risky business at government-level interest rates, below the cost of borrowing of say a water company, which doesn't make sense. No other industry gets the government to provide guarantees to its creditors.

Confining guarantees to locally-oriented banks wouldn't solve the problem. In some ways it would make things worse, because we'd end up with an even bigger local credit boom and the misallocation of real resources in the real economy would then happen locally. We'd end up with armies of unemployed builders as they have in Spain and Ireland. The way to get banks (and their depositors) to take risk seriously is to remove the guarantees altogether.

Weekend Yachtsman said...

I think you'll be disappointed.

The news just out is that the EU panjandrums have come up with some hole-and-corner smoke-filled-rooms dirty little deal to "help" Greece.

God knows what will be involved; no doubt we'll find ourselves on the hook for some of it, as you said a few days ago.

But nothing must be allowed to threaten "The Project", and so ways have been found.

Maybe next time?