October 14, 2011
Guest post by Stefan Brill.
The core problem of the current situation now and then are the ‘stinky’ assets in the balance sheets of banks.
The argumentation goes that many banks are systemic and finally, given the bank has to declare insolvency or illiquidity and has to declare bankruptcy, the real sector is cut off from access to credit to finance its investments and projects.
Now we can discuss in length how to preserve the ‘stinky’ assets to default, but no matter how high the bail-out engagement of the EU and its member states will be, it will never ever be enough to cover the whole sum necessary to cover all the losses resulting from these stinky assets.
So, why throwing the money to those institutions who have made bad or disastrous investment decisions subventionising with tax payers money their business model. And why punishing those banks not or not by this amount engaged in such assets?
Instead, these billions of Euros should be used and invested into those banks who are operating fine and enable them to provide the financing of the real sector in case a so-called systemic bank goes bust.
If there is no bank available for that, set up a system (or a bank) that provides the real sector with the money needed to realise their investments and capitalise it with tax payers money.
In any case, the aim of any decision should be to isolate the investment banking sector from the real economy. In effect, a failure of a systemic bank would be much lower, and the market would decide who‘s business model will survive.
I look forward to your comments and reactions.