Results tagged “banks” from Birmingham Post - Business Blog

Am I the only person to wonder whether there is a potentially worrying paradox at the heart of the rescue packages being cooked up by global governments and central banks? Here's what I mean:

• In simple terms, the credit crunch has been caused by banks lending money to one another. The problem is that the loans were "bad" as opposed to "good".

• Banks have now stopped lending to each other. The lack of funds to enable global business to happen is causing severe problems all over the world. Rather scarily, you get 1.14 million hits in a quarter of a second if you type "economic meltdown" into Google (call me superstitious if you will, but I didn't feel like using the "I'm Feeling Lucky" button when I conducted that experiment).

• The "solution" is to enable banks to lend to one another again.

• But banks lending to one another was what caused the problem in the first place.

• So, doing nothing causes "economic meltdown" and doing something has the potential to create an even bigger problem.

I suppose we've all got to hope that the global banking community has learned its lessons. And we might take some comfort from the promise that national and international regulators won't let things get so bad again. The problem is not banks lending money to one another per se; that is an economic necessity in the 21st century economy. They just have to make better lending decisions.

That having been said, I'm not sure that Alistair Darling or Henry Paulson had any other viable alternative. One the apparent universal truths in messes like this is that it is never the people who took the bad decisions who seem to suffer. A global economic meltdown would have far more serious consequences for the average man and woman in the street (who Sarah Palin calls "Joe Six Pack and Hockey Moms" in what may show a marked lack of appreciation of the true diet and exercise regimes of a lot of people in the industrial world) than it would for (with apologies for the stereotype) the Ferrari-driving-champagne-swilling-bonus-earning City trader who helped contribute to the problem.

I'm sure I'm not alone in wishing as speedy a resolution as possible to the crisis. For what it's worth, I'd also quite like an apology from the traders who got us into this mess in the first place.