Papering over the cracks in banks

The financial crisis rumbles on. Despite the wars and earthquakes and tsunami we find that the sticking plaster, used to patch up the finances of some European banks, has failed and more drastic measures are need. Irish banks need Euros 24 billion (24,000,000,000) give or take a billion. The European Union has bailed out Ireland (short term loans of Euros 150 billion) and Greece, but there is still a rump of a problem – the Irish banks are insolvent on a “stress test” basis, which is serious news if you have savings in an Irish Bank. The news came out on Thursday this week, and at the time of writing, no news has been published about where the additional capital is to be found.

The problem is partly due to the bank’s own management, but also due to the worldwide markets which ruthlessly exploit any signs of weakness which they regard as an opportunity to make money.

Banks should be solid, predictable institutions; we entrust them with our savings and those of widows and orphans. If there are structral weaknesses, they should be remedied proerly by underpinning temprarily and then rebuilding. It seems we are simply papering over the cracks in their edifices.

The next opportunity is Portugal, with its poor credit rating. After that many people think Spain is next, but if the vultures swarm around Spain they will really be attacking the Euro and that must be a concern in the minds of European Finance Ministers.

Ordinary folk are ill equipped to deal with these crises, and it may be that Gordon Brown’s boast that he saved the world (hastily amended to saving the banks) may well prove to be entirely illusory.

 

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