How to end the “feedback loop” between sovereigns and banks

Re: Today’s Open Europe news summary:

On Monday 2 December, Open Europe will host an event entitled, “Greece after the ‘double crisis’ – Can the feedback loop between sovereigns and banks be broken and can the economy return to sustainable economic growth?” Speakers will include Professor John Mourmouras, Chief Economic Adviser to the Prime Minister of Greece, and Hugo Dixon, Editor-at-large at Reuters. Spaces are limited but if you would like to attend please send an e-mail to Open Europe events

Business_Feedback_Loop_PNG_versionDear Pieter, There really never can be an end to the “feedback loop” of capital destruction as long as government controls money and banking.  End bailouts.  End depositor guarantees.  Return money and banking to the private sector, where market forces are all that are needed.  Then weak banks will find their funding drying up without causing systemic problems that must be placed on the backs of taxpayers.  Market forces will cause funding costs to rise when the public believes that a bank is overextended.  It will be up to the individual banks to reassure their customers that its funds are safe.  If it hides bad news from the public, its officers and directors should be subject to both civil and criminal sanctions.

I imagine that this event will attract lots of ideas that really are nothing but band-aids or calls for more government regulations and/or coercive measures that just will not work, because they do not address the real problem:  moral hazard.

Patrick Barron

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