Saturday, September 22, 2012

Germany and France have 'special responsibility' to repair Europe, but can they defeat their bankers

The Telegraph reports that Angela Merkel said Germany and France have a 'special responsibility' to repair Europe.  Doing so will require overcoming and defeating the government entities that regulate the finance industry, the bankers and their lobbyists (aka, the Blob).

Regular readers know that repairing Europe is both straightforward and easy.  It requires adopting the Swedish model for handling a bank solvency led financial crisis and requiring the banks to absorb all of the losses on the excess debt in the financial system today.

However, standing in the way of adopting the Swedish model is the Blob.

At the beginning of the financial crisis, the Blob argued for and succeeded in getting Germany and France, as well as the UK and US, to adopt the Japanese model.  Under the Japanese model, the burden of the excess debt is shifted onto the real economy and the power of the Blog is expanded.

For example,  the Dodd-Frank Act increases the amount of complicated regulations and supervision substituting for transparency and market discipline.  This benefits both the banks, who can continue to take risks with insured deposits, and the regulators, who increase in size.

Absent the financial crisis in Europe intensifying, it will be very difficult to overcome and defeat the Blob.  Please note that Japan has endured 2+ decades of economic stagnation because it continues to pursue the policies advocated by the Blob.

However, should Spain refuse to ask for a bailout, the Blob could face its Waterloo.

Clearly, the crisis would intensify.  Equally clearly, the Blob's Japanese model has failed.  Otherwise Spain would not need a bailout.  Also clear is that the solution for repairing Europe is to adopt the Swedish model.

Iceland is the most recent country to overcome the Blob and adopt the Swedish model and confirm that it is the solution for dealing with a bank solvency led financial crisis.  Not coincidentally, Iceland is also the only country prosecuting members of the Blob including its bankers.

No comments: