Germany, bailouts and ultra transparency

As the EU heads to its latest summit, Germany is under tremendous pressure to fund a bailout of EU sovereigns and banks.

Germany's response is nein (no, to those of us whose speak English).

The reason is that they don't think it is appropriate to give their credit card to someone and then not have control over their spending.

If this sounds familiar, it should.  This reason was offered up by critics of the bank bailouts at the beginning of the financial crisis.

By putting taxpayer money into the banks, we gave bank management the ability to freely spend the taxpayers' money.

How did bankers respond?  They paid themselves big bonuses and went back to the casino.

Here's hoping that Germany stands firm and instead tells the other EU countries to adopt the Swedish model with ultra transparency.

Under the Swedish model, the banks recognize all the losses on the excesses in the financial system today.  Subsequently, they rebuild their book capital through retention of 100% of pre-banker bonus earnings.

With ultra transparency, market participants have the information they need to confirm that all the losses are taken and to exert discipline so that bankers don't gamble while they are rebuilding their balance sheets.