Let banks fail, says Nobel economist Joseph Stiglitz
Posted by seumasach on February 2, 2009
Ambrose Evans-Pritchard
2nd February, 2009
Professor Stiglitz, the former chair of the White House Council of Economic Advisers, told The Daily Telegraph that Britain should let the banks default on their vast foreign operations and start afresh with new set of healthy banks.
“The UK has been hit hard because the banks took on enormously large liabilities in foreign currencies. Should the British taxpayers have to lower their standard of living for 20 years to pay off mistakes that benefited a small elite?” he said.
“There is an argument for letting the banks go bust. It may cause turmoil but it will be a cheaper way to deal with this in the end. The British Parliament never offered a blanket guarantee for all liabilities and derivative positions of these banks,” he said.
Mr Stiglitz said the Government should underwrite all deposits to protect the UK’s domestic credit system and safeguard money markets that lubricate lending. It should use the skeletons of the old banks to build a healthier structure.
“The new banks will be more credible once they no longer have these liabilities on their back.”
Mr Stiglitz said the City of London would survive the shock of such a default because it would uphold the principle of free market responsibility. “Counter-parties entered into voluntary agreements with the banks and they must accept the consequences,” he said.
Such a drastic course of action would be fraught with difficulties and risks, however. It would leave healthy banks in an untenable position since they would have to compete for funds in the markets with state-run entities.
Mr Stiglitz’s radical proposal is a “Chapter 11” scheme for households to allow them to bring their debts under control without having to go into bankruptcy. “Families matter just as much as firms. The US government can borrow at 1pc so why can’t it lend directly to poor people for mortgages at 4pc. ,” he said.
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Winston Smith said
The alternative to this suggestion is debt peonage that will last for several generations. The bankers and globalists engineered this and should go to the wall – prison sentences with hard labour would not be inappropriate. Since the banks are now effectively nationalised they should operate in the national interest to promote and preserve civilised life in this country as far as possible. Those bankers still living in BonusLand should be dispensed with – see above. I dont think any foreign banks will be clamouring for their services, so the bonus argument to preserve the best does not apply. They should count themselves lucky that they are not being dragged through the streets before public humiliation. The new banks should be constituted with untainted personnel and re-started. The culprits of this debacle should be investigated and either exonerated or punished.