Reading this article in Newsweek about the potential for Sovereign debt defaults, this seems to be the most clearly predictable move since the apple fell out of the tree and hit Newton on the bonce.
Banks rack up debts that defy mortal understanding, and then get bailed out by the government, in the case of RBS in the UK, the biggest ever government bailout, and so what is going to happen? Yes, the all but inevitable failure of the banks has been averted, but the exact same pile of shitty transactions still exists, and now has the government's, and so the public's names, on it. What we needed to save was the utility credit and payment elements of the banking system, but we can live without the systemic risk taking that will bring us all down.
Bank default didn't happen, but sovereign default could, and in some cases like Japan and Italy, and even the UK, might well.
One other worrying development was Gordon Brown and then Alasteir Darling suddently saying at the G20 that they support the introduction of a so called Tobin Tax on the banking and financial sector. Not just because of the tax, which has some merits, and some problems, mainly around how you would implement and track such a thing, but because both had opposed it before. That implies that something has changed their minds, and I think it is the realisation that the systemic risk is at least as bad, if not worse than before. Banks now know they can game the system with fantastic risks, and they will be bailed out. Make as many one way bets as you like.
Heads you win, Tails the taxpayer loses.
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