Anthropomorphizing the Banking System

Re: European Officials Reach Deal on Failed-Bank System

The European Union’s attempt to create one bank regulator with the power to shut down and bailout problem banks will fail, because it does not address the cause of generalized bank failures.  For one thing, a bank is not a person.  It does not contaminate other banks, so all references to “contagion” are as inappropriate to Europe as they were to the financial crisis in the US.  The US crisis of 2008 was not caused by the failure of Lehman Brothers, and Lehman Brothers did not “infect” other banks.  The 2008 banking crisis in the US and the subsequent one in Europe were both caused by central bank money printing.  Subsequently, both central banks have flooded their markets with even more money created out of thin air, creating the very crisis that the centralized resolution mechanism supposedly will prevent or at least short circuit.  All this legislation accomplishes is a further socialization and centralization of the European banking system, creating moral hazard on an international scale and probably the complete nationalization of banking after the damage of central bank credit expansion has been revealed.  Nothing can prevent the next bust, and no centralized resolution mechanism will cure it.  In the future, if Europe truly wants to avert another banking crisis, it must cease printing money and refrain from even hinting that any governmental body will bail out failed banks.  Then there will be no generalized banking crisis and rogue bank losses will be limited to the parties involved.  Patrick Barron

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