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Who is getting the austerity haircut because of the lousy job done by the European banks?
Suppose you run a business. Your business is to lend money to those who pay it back and to charge an interest for that. Your job is to balance risk and reward and to make sure that you get a good total return on investment.
Now you are a European bank and you have lent money to Greece. You bought their bonds.
Now Greece cannot pay back the money it has borrowed from you. You underestimated the risk… enormously.
You will go bankrupt when you do not get most of the money back that you lent to Greece. And they may be able to pay you only back 30% or so.
Thus, if you get such a small part back, you may go bankrupt. I must say… you did not a very good job. You got blinded by greed.
Now someone has to pay for this. You are too big to fail and the economy needs you. You do not want to pay. You want the state to pay. They need you.
But you did the lousy job. The state… That is all of us. Why would we all have to pay?
Who had to look over your shoulder when you gave the shop away? Your shareholders, isn’t it?
And who were assisting you in your bad judgment? Your management was there, weren’t they?
And when big calamities are happening, there are always innocent bystanders who fall victim as well. Meet most of the employees of the European banks. They were at the right place at the right for a long time. Now you are at the wrong place at the wrong time.
Thus who is here going to pay?
Is it all of us, or will it be your shareholders, management and employees?
5 Steps to Save the European Banks
I am not an expert on how to save Greece and the European banks, but here is what I see.
- To avoid that the population of Greece ends up as a cat in the corner under or a totalitarian regime, or threatening the peace in Europe (never forget what drove Germany into the hands of the Nazi’s), Greece has to default on a large part of their debt.
- Greece as a nation and all its people will have to start a new frugal, hardworking live to get out of the dump they are now. Words will not do. Only action will count. Only the right action will convince the rest of Europe to provide them with new loans to rebuild their country. The alternative for the people is to learn German, Dutch or Finnish and leave the beautiful Greek country to the poor, the tourists and the gods.
- The EU and ECB will guarantee the savings of all of us at the European banks. We, the people, are not the ones who are going to pay.
- The EU and ECB decide which banks are too far down the drain. Those will be “Europeanized” (nationalized) and merged. Shareholders will lose their shirt. Top management is fired. No golden handshakes. Many employees will lose their job or will need to accept a hefty cut on their salary. In a few years, when the situation is stable, the merged banks will be privatized again.
- Banks that can be saved get the required cash injection from the EU and ECB. Shareholders will lose the part of the shirt that is in proportion to the required cash injection. Top management can choose between or the street or a minimum wage salary till the state has all our money back corrected for inflation. Employees will need to do three steps back as well, or there will be someone from Greece to take over their job.
Austerity Haircut
When you are an employee of one of those European banks, you may object and say that this is not fair. And you know, you are right, it is not fair… the world is not always fair. It was not fair for all the people who worked for GM and lost their job and pension. And it is not fair for all the people who lost their job during the financial crisis.
It is nothing personal. The European banks are too important to disappear. You were at the wrong place at the wrong time. Now someone has to pay and it is definitely not fair if all of us have to pay for the poor judgment that the European banks have made.
Thus I suggest: Shave the shareholders of the European banks bold and give the employees an austerity haircut.
What do you think?
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