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October 21, 2011

Anti-Regulation Bankers Proved Wrong – Again

The European debt crisis continues to careen toward catastrophe, with French banks at the core of the crisis.  No surprise, but those very same banks lead the fight against regulations that would have required them to increase their capital, among other things, which would have made the current crisis much more manageable.

The long, sad story of how this happened is detailed in a terrific front page story in today’s Wall Street Journal, entitled “Struggling French Banks Fought to Avoid Oversight.”  (Full story here.)

As is always the case, the potentially calamitous consequences of the short-sighted and irresponsible actions by the French banks (and French regulators and other government officials) won’t be limited to the French.  Not only is it exacerbating the Eurozone-wide debt crisis, but it is also threatening the ability of the EU to fashion a response to that crisis that will work.  For example, if France’s credit rating and/or its banks are downgraded, that will impair if not cripple the ability of the still-evolving European Financial Stability Fund to get up and running, to borrow sufficient amounts and intervene effectively to stop the crisis.

Banks blocking even the most sensible and necessary regulations has a long history, as does the devastating consequences of such actions.  None of this is subject to legitimate dispute.  One need look no further than the financial meltdown of 2008, which cost US taxpayers and the US treasury trillions of dollars so far and those costs continue to mount.  That doesn’t even include the worldwide costs, which are many multiples of that and also continue today, including the ongoing European debt crisis. 

Anti-regulatory bankers have been proved wrong again and again.  It is past time regulators and governments stop doing what the always-anti-regulatory bankers want done and start doing what is right for the public and the public interest, which means first and foremost to protect those same taxpayers and public treasuries from being at risk of having to bail out those banks yet again, which is precisely what most of the responses to the European debt crisis propose doing.  Money should stop moving from taxpayers pockets to bankers bonuses, but that is exactly what has happened and what appears likely to happen again.

When will it stop?



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