09 September, 2007

Fallout (3)

The people who don't look as if they will suffer are the ones who have caused it: the banks. Yeah, there'll be a few bonuses cut, but the Fed and the ECB seem determined to pump money in, to prop up the weak.

Only the Bank of England seems to have understood this, initially lending to ayone who wanted it but at penal rates, and only now pumping in a modest amount, £4bn.

Liam Halligan gets it right in the Torygraph: 'If King (Bank of England Governor) grants a bail-out, he worries - rightly - about storing up future problems. If investors know central bankers will rescue them, they'll make ever more reckless investments with other people's cash.'

Banks that have screwed up must be allowed to go to the wall, or we'll get the same thing all over again. If we can get through this without anything major failing, and, say, a few hundred small financial institutions going bust in the US, it will be the best thing that could have happened to the over-exuberant US and world economies.

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