Wednesday, December 28, 2011

The Devil's Deal

By Bill Bonner

And now the bankers have made their devil deal too.

There was a time when banks were honest businesses. Bankers took deposits and made loans. The banker himself was responsible for the losses. If the bank went down, so did he. More than one banker, ruined by losses, blew his brains out rather than face the embarrassment of his own mistakes.

Now banks are shielded from the harsh light of legal liability by corporate veils and federal umbrellas. They can still make money — more than ever. But now they are no longer working in the private sector, providing a service, making profits and always threatened the risk of fatal losses. Now they are practically public utilities — like Amtrak or the Post Office.

Here’s the deal: the feds keep the incompetent bankers in business...and the bankers help the feds borrow money.
That is the message of the European bank bailout last week. Banks are no longer private sector enterprises. They provide a public service. In return, they are protected from their own gross errors.

What public service?

The Bank of Tokyo Mitsubishi recently noticed that it now owns more government debt than private loans and corporate bonds. It is no longer a private enterprise; it made its pact with the feds. It takes bailout money; and it helps fund the government’s deficits.

But given all that has gone on over the last 5 years, you have to wonder whether bankers are clever enough to figure it out. So, French President Nicholas Sarkozy spelled it out for them: the ECB would give them 489 billion euros (and call it a loan); they should use the money to buy government bonds (and call it an investment).
This cozy arrangement suits the bankers. They make profits without taking real risks. Besides, how hard is it to borrow from the ECB at 1% interest and re-lend to European sovereign nations at 6%? Even a banker could make money under those circumstances.

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