Andy Haldane:: Have we solved ‘too big to fail’?

If you still care about the role of Central Banks (you should, although it may not change much!) a guy like Andy Haldane is ALWAYS worth listening to. Here is his latest contribution…

As with systemic surcharges, the issue here is not to so much the bail-in principle, but its application in practice. Bail-in, whether of big banks, sovereigns or companies, faces an acute time-consistency problem. Policymakers face a trade-off between placing losses on a narrow set of tax-payers today (bail-in) or spreading that risk across a wider set of tax-payers today and tomorrow (bail-out).

A risk-averse, tax-smoothing government may tend towards the latter path – and historically has almost always done so, most notably in response to the present financial crisis. Next time may of course be different…

Have we solved ‘too big to fail’? | vox.

AH appeared in front of the Parliamentary Commission on Banking Standards (video) in November 2012. At the time I was prompted to explain my views on the subject of "ring-fencing"…

Financial meltdown:: Monopoly for 1%…Russian roulette for 99%

I am fed up watching whilst politicians, bankers, rating agencies and “the markets” play monopoly! This article (link below) refers to the UK and dates back to 17th January 2011 with links to even older items.

UK Economy: A cynic’s summary

People are realising that we are not in fact all in it together but have, instead, a kleptocracy

What has happened since then is that the stakes are higher, based upon gradual exposure of the sheer scale of bank and sovereign debt – to the purists there is a world of difference to the rest of us any distinction between banker and politician merely reflects what stage they are at in their career – as a result of, at best, mismanagement and, at worst, unadulterated systemic greed.

I was really drawn to revisit this topic because of these pithy comments from TIm Hoad taken from a long-running discussion on Linkedin: “How realistic is the prospect of any country either being pushed out of, or leaving, the Eurozone?”

Creators and casualties of complexity: why banks are eurozone’s fault line [BBC]

The familiar expression that springs to mind is “what goes around comes around” or, in Biblical terms, perhaps befitting the scale of the problem…

“as you sow so shall ye reap”

However, please note the deliberate use of the term “casualties” rather than victims. Because, the ability to socialise the losses renders citizens as the VICTIMS!

Here’s the lethal chain of causality: banks have found it harder to borrow because of their big loans to the likes of the Italian, Spanish and Portuguese governments, and because of fears these governments will struggle to repay their debts; but if one or more of the banks were nationalised, the perceived liabilities of these governments would increase; and that in turn would erode confidence in the ability of other banks to repay what they owe; and so on, till no institution in the eurozone is seen to be sound.