There's nothing they can't mess up, I suppose

One of the many lost causes I have been espousing more or less since I started this 'blog (by a coincidence, Northern Rock went *pop* a few weeks after I started) is that there is no need for governments to bail out banks with taxpayers' money.

Given existing insolvency rules, banking rules, the government guarantee for deposits up to £85,000 since December 2010, which was hiked to £50,000 couple of years ago (which was £33,000 before that) and so on, if left to their own devices, banks who got into trouble would sort themselves out at zero cost to the taxpayer via something called debt for equity swaps (which has dozens of variants, exactly what happens depends on the circumstances). This might mean a change of ownership, but so what? The outside world is not affected.

UK politicians have occasionally mumbled along similar lines, but were then reminded which side their bread is buttered and shut up again. Interestingly, the unelected EU Commission rode to the rescue last week:

The European Commission last night published details of its proposals for a European crisis management framework for the financial sector. In particular, the publication details how the EU would deal with any future failures of banks...

New rules could mean that senior bondholders would have to share the cost of any bailout as the EU would have statutory powers to force write-downs. The framework, however, does not mention what class of bondholder would be affected. It says that mechanisms should be in place to avoid the use of taxpayer funds in the case of a bank failure.

The bitter irony in all this is that what the EU fobbed off on us as taxpayer-funded bail outs of Greece and Ireland was in fact an indirect bail out of French, German and UK banks (all with close ties to the government/politicians) which had lent money to Greece and Ireland, so this is shutting the stable door after they have stolen the horse and sold it, but hey.