bank bail-outs

I am getting increasingly angry at the UK government throwing taxpayers' cash down the drain to bail out failed banks. Lots of it. In spite of all the commentary I have read from numerous analysts, I remain totally unconvinced that it is the right thing to do. Some banks are failing because they made some very stupid deals. Others are not failing, because they didn't. Building societies that didn't get involved in buying bad debt are doing fine. The obvious solution is to let market economics run its course. Companies that make enormous mistakes go bust. So let them. It's a tough world out there, and no company should have a god-given right to success. Most companies only last a few years before they die, but although that is sad, it leads to better companies, a better deal for customers, and a more efficient economy. The banks are bigger, but the rules should still apply to them.

The government (and many others) believe we need to bail them out because the economy cannot work without them. Why? Why not just let the surviving banks pick up the customers as their failed competitors collapse? Surely building societies would naturally grow back to their positions before their cousins mistakenly decided to become banks and surviving banks could apply their proven better practices to the rest of the industry. People would be able to borrow and lend via surviving banks. Since survivors would presumably be able to pick up staff and computers and buildings, and even some of the better managers, surely it would all return to reasonable normal efficient working in no time? By offering bail-outs even as a distant possibility, the government has encouraged banks to forfeit responsibility for their own survival. The result has been disastrous, with many people kept in lucratively rewarded jobs who deserved fully to be unemployed or even prosecuted for negligence, while the enormous consequences of their actions are paid for by wholly innocent people who in most cases can ill-afford to help.

Much of the commentary is about the failure of capitalism. I think that is mis-stating the situation. It is a failure of part of the banking system to apply due care and diligence in a free market. Like any market, some of the produce on offer was good, some bad. Companies that failed to take the effort to inspect products before purchase deserve to suffer the consequences, up to and including their own demise it the mistakes are big enough.

As for the shareholders of the banks, the same law applies. Don't buy things you don't understand. It is no defense to argue that these companies appeared to be sound. Banks were involved in very tricky business. Investing in them without understanding the risks of that business was unwise. The rewards were attractive when times were good, but that came at the price of risk, and it is unreasonable to demand protection from that risk while reaping the rewards while all is well.

The only people for whom I think protection should exist are the ordinary people who deposited their money in the banks. It is right that the government should protect them, certainly up to the celing level, above which it could once again perhaps be argued that the owners should know better than to have all their eggs in one basket.

The market is a jungle. There are tigers and cute little bunnies. Animals quickly learn to distinguish them, or they get killed. But jungles work very well, and support a rich diversity of fauna and flora. Human markets are just the same, but the same care is needed, because similar rules apply. Banks should have known better. They didn't, so they should have been allowed to die, with the market ecosystem quickly adapting to their demise, followed by a rapid return to normal healthy operation. Interference by government has wrecked it.