Great Work Ritchie

Today brings an interesting piece in The Guardian.

Spain\’s fucked as a result of the not for profit mutuals run by the politicians.

Ritchie\’s euro solution.

The third part is a simple one, which is that the government issuing the bond has to take over and manage the bank to ensure that its solvency and liquidity are managed within these constraints. This means nationalisation; nothing else will do.

Let\’s make all the banks nationalised and run by politicians.

Nope. I can\’t see anything wrong with it either.

13 thoughts on “Great Work Ritchie”

  1. That post is also on his own site. And on it is I think one of the stupidest comments I have ever seen:

    “a. If the money goes to the Spanish government it presumably then lends it to the banks.
    b. According to orthodox theory every debt liability has a corresponding asset
    c. If that is true the worst that can happen is that the transaction is neutral so far as Spain is concerned
    d. It seems possible that it could actually reduce sovereign debt depending on the interest charged on the loans to the bank
    e. When europe lends to a state it imposes conditions
    f. It follows that if a state lends to the banks it can equally impose conditions
    g. The state can therefore require that the banks use the money to repay deposits from ordinary people and money owed to pension funds
    h. After that the banks can go hang, because it is those liabilities which blackmail us into helping them
    i. That jmoney is then with depositors and pension funds
    j. The state can then require them to give it to the state for use in rebuilding the economy”.

    So, Spain borrows money from the EU to recapitalise its banks, lends them the money instead of buying shares – which of course increases their leverage so makes them LESS solvent – then insists that they use the loaned money to eliminate their depositor base and redeem their senior bonds. It’s an object lesson in how to bring down a bank. I would say “you couldn’t make it up”, but she did.

    Oh, and step j – there’s a word for that. It’s called “expropriation”. Otherwise known as “theft”.

    I suppose it’s good to know there’s someone out there who has even less grasp of reality than RM.

  2. After the fall of the Berlin Wall, most (not all) of the liberated countries had to privatise their banks by finding a foreign investor who would inject enough capital to make them solvent due to the incompetence and corruption endemic among state-owned banks. Murphy wishes to nationalise banks to ensure “their solvency is managed within these constraints”.
    The Greeks had a phrase “those whom the gods wish to destroy, they first make mad”

  3. Considering the expenses scandal, the problems government departments have had, the poor capital projects, and so on – all with state control or oversight – I’d hate to think what a state-owned bank would be like if it had to provide the services the other banks do.

  4. Yeah but the nationalisation of RBS/Nat West hardly ushered in an era of political interference did it? See Guardian headline” RBS The nationalised bank that regards itself as operating in the private sector”. (The story questions Stephen Hester’s claims for a mighty bonus in line with other commercial bank maestros of finance.)
    With arms length from government/ stand alone status, nationalised banks could operate for a public profit, for instance using seignorage from interest rates as a tax on the issue of money.(There is no reason why nationalised enterprises should be operated at a loss.)
    Agreed any involvement by local politicians would be a disaster here as in Spain.There is just not the talent at local level .Localism? God no.

  5. Are those banks nationalised? Or merely majority of some shares owned by government temporarily?
    No reason why nationalised enterprises should be operated at a loss I agree. Just pretty common – what do civil servants and MPs know about running a business? What incentive is there to keep costs down?

  6. @MD
    Its not really a matter of” banks” as RBS took over Nat West years ago( also the Ulster Bank and the posh people’s bank Coutts I believe,though Ulster Bank may already have been part of the NatWest set-up and subsequent deal).
    I don’t think MP’s and civil servants would run a nationalised bank ,just the usual managerial suspects who would do much the same job in the private or public sector.When the mines were nationalised, the cry went up from the workers “Same old managers though”.There used to be a convincing theory from JS Burnham,author of the Mangerial Revolution(?) ,that Communist and Capitalist means of production would matter little as both would be controlled by a uniform class of managers.

    Don’t hear much of Burnham these days.

  7. @dbc reed: the issue with nationalisation is less about the quality of the management, which can be [email protected] in both public and private sectors, but the absence of destructive forces in the nationalised sector. Had the mines not been nationalised for example, many of them would have gone bust naturally over the years, others taken over by competitors. The unproductive would have fallen by the wayside, the productive continued to thrive. Creative destruction would have done its job. Instead the taxpayer becomes the bailer-out in chief, and every time something goes wrong instead of the firm going bust, the taxpayer bails it out. So the inefficient survive, and the efficient have no incentive to continue being efficient. It is only the fear of destruction that drives the efficient onwards. Remove that fear and you get British Coal, British Leyland, British Shipbuilders and currently the NHS.

    Banking would be no different.

  8. @ Jim
    The *big* issue is that the supervisor is also the owner, which is why theSnadinavians wre complaining about acid rain when the state-owned CEGB ran our power stations and the worst industrial disease while the mines were nationalised was pneumoconiosis and Eastern European banks were stuffed full of dud loans to state-owned enterprises and one local authority built a terrace of houses designed by the Borough Architect and approved by its planning officers so that the dustbins (pre-wheeley-bin) had to be carried through the houses on bin collection day and the worst UK chemical explosion in my memory was in a factory jointly owned by the National Coal Board and Dutch State Mines and there were repeated outbreaks of dysentry from polluted drinking water supplied by municpally-owned water boards pre-privatisation, and the Gas Board’s answer to leaks was to add a stink to natural gas so that people would smell it, rather than make gas pipes leak-proof, hence the Ronan Point explosion, and …

  9. It is only the fear of destruction that drives the efficient onwards. Remove that fear and you get British Coal, British Leyland, British Shipbuilders and currently the NHS.

    The same could be said of the current British banking system, of course.

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