It occurred to me after posting the piece on collapse that i no longer think there are any good options left for the government / bankers.
If the UK government nationalises the banks, wipes out the shareholders, moves all of the junk into a ‘bad bank’, and attempts to recapitalise the survivors, it’ll destroy confidence in the UK banking system, which is such a huge part of the economy that it’ll crash the pound, eventually causing the government to default on it’s foreign debts, and probably start a cascade of defaults that’ll ripple around the world.
On the other hand, if they attempt to recapitalise the banks with tax payer money, while not nationalising, they’ll get bled dry in the markets, have to borrow more in the debt markets to keep playing the game, until they get to the point where they have to default on the debt… see above.
Putting myself in their shoes… i suspected it’d be close to impossible to take the first route, even if it was the shortest path from disaster to recovery. The second has the pleasant illusion of appearing to be ‘fighting the good fight’… pointless, but at least it’s something… right? Worth remembering that we are dealing with politicians here, not rational at the best of times.
In a way the Icelanders have got the best of it. They’ve taken their lumps, were small enough, isolated enough, to be able to throw their hands up and admit defeat. And while it’s obviously going to be rough for a while, they can at least see a point in the future when they’ll have a clean slate. For the UK the problems just keep on coming, and it’s still getting darker…
[I’m writing ‘the UK’ in these pieces because it’s the basket case that i read most about at the moment – the problems are just as bad, maybe even worse in the PIGS (and Ireland, especially ireland…)]