The decision to nationalise Dexia, and to offer Euro 90 billion of funding guarantees to this bank, alongisde creating a bad bank, shows they have learnt nothing from the crisis so far. Meanwhile the French and German leaders decide that they delay a few more weeks before having a working plan to deal with weak banks and overborrowed sovereigns.
The last thing we need is to perpetuate the idea that governments can afford to bail out all these banks,and that taxpayers should stand behind all their bad loans. They are now well into the vicious circle – weak banks are made by regulators to lend money to weak sovereigns, which in turn bail out the weak banks.
Governments need to stop forcing banks to buy government bonds, and need to let banks go into controlled administration if they get into difficulties. Governments can stand behind depositors and clearing systems, but there is no need to stand behind all the other ways banks have found to lose money. We need private sector solutions to bank problems. Taxpayers should not be dragged into the mistakes made by the banks, urged on by the governments.