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Are the Banks Doomed to Fail?
By The Anglo American | February 17, 2009
As the US Treasury conducts its stress tests on US banks the fear is that they do not have sufficient capital to survive. This theory is founded on the condition that the economy does not deteriorate any further.
With Japan’s economy contracting at levels equal to the Great Depression this optimism seems more than a little out of touch. Head in the sand would be closer.
The spontaneous and convivial dialogue that always exists between the American and British people is because they share so much in common. We can now add to a long list, their shared hatred of bankers and financiers. Lear jets, parties and bonuses on the back of public funds have left Americans seething at Wall St.
If you stroll down Threadneedle St. in the UK’s financial district, known as the City of London, it is still easier to find an Aston Martin than a taxi.
Have we got it wrong? Are we just throwing good money after bad? Should we let them fail? The British Prime Minister, Gordon Brown has long surrounded himself with bankers rather than economists. Washington has a similar bankers “ol’ boys” network.
On both sides of the Atlantic, bankers and ex-bankers, are distorting politics. They exist in their own micro-economic bubble. No wonder they pump more money on to their balance sheets rather than pass on desperately needed funding to solvent businesses. Crucially, they leave our financial leaders blinkered from macro-economic solutions.
If this the time for unconventional economic thinking then let us be bold. If banks won’t conduct normal business financing then stop giving them money and simply go round them. How difficult would it be to set up a national public risk management back office? If the Detroit three have to find short term funding by driving into their local post-office {in a dusted off Dodge Neon and their like, would be more preferable} then so be it.
This is not socialism or, for those people who confuse their “isms”, this is certainly not communism! It is a short-term crisis solution to the biggest financial crisis of our lives. It allows normal cash flow to thriving businesses. Over half a million people are losing their jobs every month in the US with over 300,000 a month in the UK. A significant number these people are losing their jobs quite unnecessarily.
As capitalism expects, allow the banks fend for themselves. After all, it is only by allowing banks to go bust that we can get rid of bad bankers. If they fold, then allow the receiver to do the job that banks refuse to do - put a value on their toxic collateralized debt obligations. It’s about time somebody knocked on the doors in places such as Cleveland and made the mortgage holder pay up, re-finance or move out. Only then will we know the true value of these awful inventions and finally remove them from the banking lexicon.
©TheAngloAmerican.com
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