Thursday, October 27, 2011

Robbing Peter to pay Paul

One of my neighbours is a German (husband) and Greek (wife) couple, family arguments about finance have been over the topic of the Euro and Greek debt for the past couple of years rather than the usual financial arguments!

Anyway, there may be some peace in the household today with the announcement that this has been addressed. Although, it's amusing how its been addressed, which is why I've titled this "Robbing Peter to Pay Paul". One of the question I asked on my first quiz was:
How much national debt is too much?
Which was a trick question, but entirely relevant to this solution. I would toss in the concept of "too Big To fail" as well, but the question ultimately is "who is too big to fail: the Governments or Banks?" Governments are adding more money to the pot, and banks have been told to increase their reserves in this solution to the Euro crisis.

And anyone who was dim enough to have lent money to these countries is getting a fraction of their investment.

The thing is that both government and the private sector are having to take a hit in this "solution". "Solution" since it offers more questions than answers. Not to mention the failure of a few countries will effect the world economy. Which gets back to my too big to fail comment.

Who is too big to fail: Governments or the private sector?

I've wanted to post Michael Peston's BBC Documentary Britain's Banks: Too Big to Save? Although another good documentary is Inside Job. Ireland and Iceland were both brought to their knees by the excesses of their banking industries, yet the public ended up bailing them out.

Regulation is needed, but that means that we have another question which is who should regulate the banking/financial industry: the public or private sector? For most of its existence, the Bank of England was a private institution (nationalised in 1946) that worked to regulate the British economy. So, a private body can act as a "reserve" bank.

Of course, there are issues of control and transparency when one discusses whether such a body should be public or privately run.

Anyway, we now have a patch job of a solution to the Euro crisis--how long before another crisis occurs?

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