Madam, – Charlie Fell (July 2nd, Business this Week) advocates “shoring up the banking systems of the core, notably of France and Germany, via a transfer of public funds” and calls for a resolution strategy “that recapitalises those lending institutions which cannot bear the losses”. Is it feasible in a time of EU-mandated fiscal tightening to pour money into failed institutions without also insisting that the bondholders of those institutions accept their own haircuts and take the consequences of having made bad investment decisions?
Isn’t it time to stop pretending that the answer to private business losses is to socialise them and transfer the risks to the taxpayer? It is strange to me that we should be making such extraordinary efforts to save the hides of sociopathic gamblers but will not lift a finger to aid distressed homeowners and businesses that create jobs. It seems to me that the rules of capitalism are more strictly applied to those who create wealth than those who wantonly destroy it, and that moral hazard only applies to people with mortgages.
The solution to our problems is not more wealth transfer and public debt but the liquidation of dysfunctional financial entities and a reorientation of our policy focus towards the real economy – factories, small businesses and innovators.
While we are busy dumping money on sick institutions, we are losing our technological edge and our export markets to the Asians, and we are doing so at a time when we face the strategic nightmare of creating more debt to be serviced by a shrinking population. When are we going to awake from our religious devotion to preserving bankrupt institutions and face up the cold reality that a continent in decline should have radically different economic and social priorities? – Yours, etc,