bad bank

Last week I bailed out Ireland. I forked over the promise of 300 pounds, to be taken from my paychecks in the form of increased taxes over the next few years. No one asked me if I wanted to help those portrayed in the media as our Irish brethren, our closest neighbors and most intimate economic connection.

Had I been consulted, I would have said no. It's not the Irish government or the Republic of Ireland as such that is in need of money that has suddenly stopped sprouting from trees, but the uninhibited consumer-citizens of that country and the profligate banks. The citizen, as always, are getting a properly raw deal in the proceedings. State employees of all sorts (including researchers at public universities) are seeing their salaries slashed. Values of houses, a sure-fire investment if there ever was one if you were to believe mortgage banks and lazy governments, have come down to sustainable levels. Unemployment has trebled and most Irish can't even afford a horse or two anymore. None of this came as a surprise to anyone looking at the numbers with sober eyes. Not many did, though, least of all the Irish banks.

Irish banks lent half the planet's money to finance spurious investments in a tiny republic. Their portfolios reached several times the entire GDP of the country. Yet no one saw anything wrong. On the contrary. Foreign banks were all to happy to collude in the construction of the mighty pyramid of Celtic prosperity. German banks are invested up to their ears and so are the British. But in contrast to Irish citizens, foreign banks have a strong lobby and have, for this reason only, avoided any sort of financial haircut.

If I understand the bail-out correctly, it makes sure that foreign investments in Ireland and in Irish banks are guaranteed. In other words, tax-payers' money is nearly directly transferred into the vaults of institutions that exhibited the most egregious kind of financial mismanagement and that managed risk more poorly than the winners of the annual Darwin awards. Why do I support this stunning ineptitude?

It is always systemic risk that is cited as a reason for ever-increasing financial sacrifices by governments and, ultimately, tax-payers. This poor excuse ignores the fact that systemic risk is only increased by concerted support for failing institutions. The only future-proof way would be to trim the losers and systematically cut them down to a size where they can be dismantled safely, with the same care but also the same determination you would use for disarming an unexploded World War II bomb.

What really riles me about this bail-out business is that it's done in the name of capitalism. I grew up in socialism, maybe communism depending on the particulars of your dictionary, and I can attest to the fact that the current economic system is better. And I want it to stay that way. In my book, one of the defining factors of capitalism is that failing enterprises make way for more successful competitors by withering and then going bust. This is not the case in many branches of industry and service.

Left and right, established names are being propped up in the name of, what? I don't want to know! If a company fails, it must go. If it's a big airline, there are ten new ones eager to take the place and provide better service to customers. If it's a Jurassic car company, there are plenty of competitors to put their vehicles in showrooms worldwide. And if a bank has invested poorly and wasted its business, it must go. Life will go on and, most importantly, capitalism will.