Saturday, July 04, 2015

Be wary of the argument that "greedy banks" are at fault for lending to Greece

On the whole Iain Martin writes a sensible piece:

But I think we should be wary of the argument that "greedy banks" are at fault for lending to Greece. 

It was a view promulgated by three of the four guests on Dateline London earlier today (a programme that is becoming more and more left-wing and included today the comical Marc Roche ):

Banks may well contain individuals who are greedy (just as all organisations contain greedy people).

But that does not mean debts should be written off.  The banks that loaned money to Greece were not handing over cash from the pockets of greedy bankers.  They were lending money that ultimately (and after going through many permutations) belongs to people who will one day need it (investment savings trusts, trade union pension funds, manufacturing companies with temporary excess cash etc).

Often banks will lend to governments because the idea that a government will not honour its debts has been, up to now, unthinkable.

So what happens to the little people in the rest of the EU if Greece defaults on its debts?  Probably the banks who lent the money will not fail, but they will experience trauma.  And will have to reduce the rewards they give to investors - which will mean smaller pensions, shortfalls in mortgage annuities, less generous insurance payouts.

The money that has been lent to Greece is not fairy gold.  It does not grow on trees.  It is slightly nauseating to see the Greek government arrogantly asserting that their debts will "have" to be written off.

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