Monday, October 10, 2011

Why the Dexia Bank failed!

A tale from my childhood, offers the best explanation for the failure of the French/Belgian bank, Dexia, (already the recipient of €6.36 Billion in 2008,) just announced. It also offers a salutary lesson for the even worse events almost certain to now follow.

I was particularly lucky as a child, for I had a Godmother, who every Birthday and Christmas would include in her greetings card to me, a cheque for £2-2s-6d. The half-a-crown was for me to buy myself a gift, while the £2-0-0 was for deposit to my Post Office Savings Account. Around the time I was 12 years old, I queried the low rate of interest I was being paid, and began agitating for the right to move the money to a deposit account paying higher rates of interest. I was dissuaded by being lectured on the "well-known fact" that higher rates of interest could only be obtained by accepting a loss of security, the British Government, as ultimate guarantor, (not then having descended to the level of lies and deceit with which we are all too familiar today,) was seen as solid, the difference in interest paid being likened to an insurance premium against default!

Dexia Bank's liabilities, will now be completely  underwritten by the taxpayers of France, Belgium and Luxembourg apparently to protect those depositers who chose higher rates of return than normal, disregarding the obvious fact that higher returns ALWAYS indicate greater risks! AND that they have enjoyed the benefits of such higher returns in the past!

To offer depositers these higher rates of interest, Dexia, we are told, has extensive investments in Greece, and also lent long and borrowed short. It was driven by greed. Those depositing the funds under there control with that bank, therefore negligently opted for higher returns at the expense of security and should therefore pay the price!

Many of the depositers are apparently small local authorities with elected officials. Is it not, therefore, now the case that taxpayers are being asked to pay for the mistakes of people who rightly deserve to be voted out of office?

As sovereign nation's themselves now also stand on the edge of ruin, be aware that elected national politicians are preparing similar expensive and ruinous blame avoidance, to protect themselves from the consequences of their incompetent actions!

The appointed Mervyn King, Bank of England Governor, who decided to push £75 Billion into the UK economy last week, is engaged in the same task, to protect his own position, itself made possible by the very politicians, similarly desperate to maintain their own positions even as evidence of their startling dishonour and incompetence, becomes ever clearer.

Update 0935 BST: Douglas Carswell gives a timely reminder of how currency debasers were dealt with in the past, here.



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