Blind 'em with science
When all of the heavy firepower that the EU said it was firing after the Wednesday summit is analyzed, a fair proportion of it looks to be the result of blanks being fired. Cunningly, the EU has pushed out three "solutions" simultaneously, in the vague hope that the general public, at least, will not bother to read the analyses that come from, well
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Part of the problem is that, although there are similarities to the past, in other ways, "we have never been here before". One of these is that the global economy is much more inter-connected that it was. I mean, how DO you shut down ESFG? Portugal would never agree to this as a "solution". The technicalities of this are possible, I suppose, but the implications would be a complete global (not even EU-specific) freezing of the volatility of money. As a solution, it's even more constrictive than the pre-Roosevelt responses to the 1929 crash.
I mean, if money just stops moving altogether, you don't just get bad broke banks shutting down, you get what were good banks becoming bad banks, because banks depend on the volatility of money to generate income. You get countries that had decent tax revenues moving down the Greece route because money isn't moving around, so taxes aren't paid. The entire world of business would hit some kind of mother of all cash-flow crises.
In this sense, you have to keep at least some of the bad banks going to stop the good banks becoming bad banks.
PJ
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"Let's clear this up quickly and take the pain for a year or two" is hardly radical (although I will call it that if it makes you feel happier about your U. Cantab days). It's sodding obvious, isn't it? And it was sodding obvious in 2008, which is, let's see, -1 year away from a result.
As you keep banging on, the basic issue is that Hoi En Telei are, bizarrely, concerned with Business As Usual and making the assumption that a few sticking plasters will keep this going into the middle term, say, 2015.
Obviously it will not. Even if all three major participants (I'm including Italy purely as a courtesy) deliver, it will not.
Sorry, I'm still generalising as an institutionalised historian (yes, we're institutional as well). I'll have to think about this a bit more.
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How you "shut it down" is theoretically very simple.
You buy it.
Admittedly you'd have to get various Portuguese interests to agree, but frankly the alternative sounds even worse to me. You're not buying every single Portuguese bank; you're just taking the more worrying ones out of the equation.
Of course, you're then left with the rest of them. But you could do this at minimal cost throughout the entire EU (possibly with a warning sign over French banks, whose finances make no sense to anybody who is not a graduate of the Ecole Polytechnique), and at the very worst you'd end up like the UK, lumbered with a huge unwanted equity in various Scottish farragoes and Northern Rock and Lloyds.
I haven't seen a melt-down of UK Government finances based on that.
To extend your exuberant last sentence, I cannot see a problem with innoculating the worst of the bad banks in order to keep at least some of the bad banks going to stop the good banks becoming bad banks ...
And doesn't that sound a tiny bit like feedback?
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But, you are right in one sense. If a complete crisis is developing, this kind of mass nationalization is possible. This could be followed by compulsory mergers and job losses (that will be the hard part) and a complete restructuring of the European banking system. This probably has to come, but there's no chance of it occurring at the moment without a complete freeze-up, as far as I can see.
PJ
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