The huge and growing problems in Ireland are an awful warning of what happens when you don't fearlessly calculate banks' potential problems before you commit to bailing them out.
Conceptually that calculation isn't difficult, despite the hopeless mess made of the projections by successions of highly paid consultants. As Liam Halligan has repeatedly stressed about the UK, you certainly can't rely on banks' own sensitivity analyses. Why would they bring you bad news to their own disadvantage? And who in a bank would be qualified or brave enough to rubbish the judgements of their own hierarchy?
Sadly, and despite the best efforts of Irish politicians, the country's finances have been broken by their big banks.
Goodness knows what the consequences for Ireland will be. But meanwhile it shows what may happen if you don't properly supervise banks which are large in relation to the size of the state.
It also shows what can happen if a country can't control its own interest rates.
Together, they made for an abdication of economic government.
1 comments:
Controlling interest rates didn't stop the Icelandic banks destroying the economy there.
The problem is that politicians in league with the banks have brought on this crisis. The politicians mustnot be allowed to forget their part in this mess.
In the case of the Irish things are made worse by the Euro straight jacket.
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