Saturday, February 11, 2012

Public Sector Banks

From Martin Taylor, writing in The Financial Times:
 Investment bankers may be in retreat, but ideas – as so often – outlive their progenitors. Financial engineering is still with us, purporting to work its meretricious miracles for governments. Thus there remains considerable faith – even, or perhaps especially, among people who hate bankers – that a financial solution, involving firewalls, bazookas, leverage and improbable amounts of money, can “solve” the euro crisis. It can do no such thing. It can buy time, as the European Central Banks’s deftly enormous interventions are doing by flooding the banking system with cash – but the purchase of time is not costless...  
 Facing up to losses on sovereign exposures may be necessary, but it is deeply subversive; every bank, and every central bank, reposes on the myth of sovereign credit. Since in many societies there will be no alternative but to socialise much of the fallout, we can expect to see state indebtedness in many still solvent countries rising to proportions of gross domestic product much higher even than they are today, and many banks coming under state ownership. Pressure will rise for them to behave unashamedly like state banks. 

 The entire article is well worth reading.

1 comment:

  1. I wonder would that be such a bad thing? We used to have forms of 'state' banks in this country, in the shape of ACC and ICC, which did valuable service to farmers and start-up industrialists before they were sold off. Yes, it would be bad news if self-serving politicians started treating the banks as their personal playthings, but when we consider the devastation wreaked by the private banks, could state-controlled ones be worse?

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