It’s not simply that these were banks that made some past losses and should have been able to raise capital to replace them but the Middle Eastern, East Asian and Norwegian sovereign wealth funds irrationally decided not to pony up the dough. Some of these institutions simply could not continue as they were. They have become value-destroying enterprises that need to be significantly restructured. They need staff fired, assets written down, business lines shut. There will be redundancies. Some banks will cease lending to the kinds of enterprises they lent to previously, so some business and individuals will have to seek their credit elsewhere. When governments refuse to allow these things to happen, but instead chuck money at the problem, they don’t make the problem go away; they make it worse. All they achieve is to retard the necessary and healthy process of restructuring, and extend the period of value-destruction. In the meantime, they tax the poor to provide money to bail out the rich. This is immoral, as well as economically destructive.
Read the full article at Telegraph.co.uk