Fiddling while Athens burns

G8 summit: David Cameron’s plan for saving euro: make Germans pay
Angela Merkel will come under pressure to use German taxpayers’ money to help rescue struggling European countries, including Greece and Spain, by underwriting their debts.

I don\’t think they understand. The bank runs have started. The Greek banking system is simply draining away at something ungodly like 0.5% a day. The Spanish system isn\’t that far behind.

To a reasonable approximation there just isn\’t the time left for a political solution. They\’ve pissed about for two years already.

There is a banking/financial solution possible: simply print euros, flood the banking system with new cash so that even as the runs continue the banks stay upright. But if you don\’t so that then there just isn\’t, I submit, time to do anything else.

This is obviously just musing, but I do wonder about our rulers really. Many of the continentals insist that the whole system is set up to favour neoliberal finance, the banks are too powerful, it\’s all big money\’s fault.

But they seem not to understand that very big finance at all. They simply d not see that fractional reserve banking is a confidence trick, a very useful one, but a trick all the same. And when that confidence goes, as it is going, the all the Canutes of politics cannot stop the tide.

You\’d expect people who insist the system is in thrall to banking to understand a bit more about banking.

18 comments on “Fiddling while Athens burns

  1. False premise. You don’t have to understand something to blame it.
    How many people blame International Jewry without understanding Judaism?

  2. Why?

    You asked that about Ed Bollocks saying the Euro had to be saved. Why?

    But now you think the banks have to be saved. Why?

    A certain breed of free-marketeer have a blind spot about fractional reserve banks: they oppose bailouts for every sort of business except fractional reserve banks.

    Now, I have nothing against fractional reserve banks if people choose to put their money in them. I don’t subscribe to the Rothtard arguments that they are fraudulent etc.

    But I do have a problem with bailing out failed business models.

    The free market tries to destroy fractional reserve banking every few years. But supposed “free marketeers” always step in and stop it. Why?

  3. A certain breed of free-marketeer have a blind spot about fractional reserve banks: they oppose bailouts for every sort of business except fractional reserve banks.

    Your prejudices are reading Tim’s article for you and not getting it quite right.

    If you want to save the euro (and really I don’t think Tim does) then he is suggesting that there is only one solution that is going to work in time.

    Print money and flood the banking system. Nothing in that prevents you from nationalising the failed banks at the same time. (You don’t want to allow them to actually collapse, because of the liquidity effects.) There is a difference between “too important to fail” (big just being the easiest way to be important) and “shareholders and bank management must be protected.”

    The bailouts were implemented by the notorious not-free-market team of Bruin and his pet badger.

    Disclaimer – I’m a free marketeer and an RBS shareholder. I don’t see why RBS wasn’t completely nationalised and then flogged off / shut down / run as some sort of national Credit Union.

  4. “I’m a free marketeer… I don’t see why RBS wasn’t completely nationalised”

  5. “Your prejudices are reading Tim’s article for you and not getting it quite right.

    If you want to save the euro (and really I don’t think Tim does) then he is suggesting that there is only one solution that is going to work in time.”

    You’re right, if I was basing my comments on just this article and giving Tim the benefit of the doubt, I wouldn’t assume that Tim supports bailing out the banks. But I know from other blog posts that he does.

  6. The RBS / nationalisation point was that there were a lot of customers who were protected by government Deposit Insurance. So there is already a financial commitment on behalf of the Treasury.

    Take the bank over (for free – it is worthless) and then have an orderly transition of customers either out to other banks or keep running RBS as a government undertaking. Just because you believe in a free market doesn’t mean that the government can’t run things (that’s minarchism or other extreme libertarian sects).

    The “we’ll bail you out and then keep interfering via press release” situation we currently have is the worst of all possible worlds. Except for RBS employees.

  7. Surreptitious Evil: “Just because you believe in a free market doesn’t mean that the government can’t run things (that’s minarchism or other extreme libertarian sects).”

    Opposing Stalinism is an “extreme” position now. Welcome to the looking glass.

  8. Pingback: Lack of caution : Stoat

  9. Anyone have an idea what to do if Santander goes belly up?

    I have a mortgage with them at the moment.

    Tim adds: You own them money: you’re fine. If they owed you money, and more than deposit insurance covers, then possibly not fine.

  10. “You’d expect people who insist the system is in thrall to banking to understand a bit more about banking.”

    Though it is possible – even more likely – interpretation that it is because they DON’T understand banking that they are blaming it…

  11. James James

    I don’t agree with propping up the euro and I don’t support bailing out banks. But I don’t agree with your posts, either.

    A bank lends a sum of money over 25 years to a borrower who doesn’t at the moment have the money to pay it back – the assumption (on both sides) is that he will earn that money over the course of 25 years. In what respect is the behaviour of the bank and the borrower different? The borrower is borrowing money from his future, just as the bank is. If you remove the capability of banks to borrow from their future income, you also remove the capability of people to borrow against their future earning capacity. And that leaves an awful lot of people short of the wherewithal to buy somewhere to live, or buy the means to get to work, or even buy the education needed to get a decent job in the first place. Your posts are also notable for their lack of any discussion of the motives of either borrowers or lenders, or any consideration of repayment schedules and interest payments. In short, though they look clever they are fundamentally flawed. I’ve noticed that’s what tends to happen when someone who knows nothing about banking & finance tries to reinvent it.

  12. Santander Bank plc, a UK bank with UK assets and liabilities, won’t go bust. Santander Group SA might, but that doesn’t matter – they’re just Santander plc’s shareholder.

  13. Ironic, really, that the hard-money guys don’t seem to realise that they are in effect promoting a global version of the euro (the “worldo”???), by default [sic].

    There’s one of those famous triads in this somewhere, something like “fixed exchange rates, free movement of capital, similar interest rates. Pick any two”.

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