“The people who bear the burden of a crisis are rarely the ones who caused it” (Aphorisms of Jim Quail, vol. 2)

One alternative is to allow the banks to pay the natural price of financing the Great Bubble in real estate, stocks and commodities, and that is to abandon them to default and bankruptcy.  Pretend they are ordinary debtors like the rest of us, with crushing mortgages and falling incomes.  This would direct the ultimate burden of the crisis onto their shareholders and bondholders, and the rest of the country would suddenly feel the financial load dropped from its shoulders.  The hedge funds would shriek like stuck pigs, but for once the cost of the crisis would lie with those who profiteered from the Bubble and caused the crash.

Another, much more elegant way to achieve much the same result is to enace legislation which converts the banks’ bonds into common shares.  That means transforming debt into equity, and creditors (whom the EU and IMF are so anxious to protect) into owners, who would then bear the entire impact of the worthless debt from which they profiteered during the Bubble.

This would be messy, no doubt.  But not as messy as tossing the unemployed from the lifeboat, which is the IMF solution.  There is no pain-free solution to the mess that unregulated bubble-markets put us in.  The big question in every crisis is:  who is going to pay the price?  Governments everywhere have made a choice.  It is time for the rest of us to demand a different answer to that question.

I’ll end with a quote from Irish economist David McWilliams:

The jobless recovery is an insider recovery where the outsiders, the unemployed and the emigrants, get cast aside.

This is what happened in the 1980s and it is being championed again now. The country is turned into a large debt-servicing machine.

This is not a growth strategy, it is a debt strategy whereby we pay the huge debts run up by our banks and property oligarchs.

Eventually, as has happened time and again in Latin America, the people say ‘Enough!’. If the government is not acting in our interest, we take matters into our own hands and take our money out, rather than see it used to pay for the mistakes of the banks.