The Guardian Extracts Its Pound of Flesh

By now the reputation of bankers for wisdom and probity has sunk lower even that that of journalists. Although (or is it because?) we all need banks, we also hate them. I could bore a entire barroom for hours with stories of the tricks played on me by my bank: for example, of how, when I transfer money from my English to my French account, it disappears at once from the first but does not appear for days in the second. Is it the English or the French bankers, or some combination of the two, who are having their wicked way with it?

But widespread sentiments should be mistrusted, even where there is some initial justification for them. How easily does a reasoned dislike slide into scapegoating, how easily we let a pleasurable emotion such as hatred overwhelm our logic and our reason!

Recently, for example, I read an article about the economic crisis in Europe in the house journal of the British intelligentsia, the Guardian. Profit is to this organ what usury was to the medieval church, especially when it is made by financiers. Not very deep in the subconscious of its writers, and probably of most of its readers, is the image of capitalists as bloated plutocrats in silk top hats, satin-lapeled frock-coats and gaiters, to be swept from the face of the globe a la Russian revolutionary posters.

According to the writer of the article (Phillip Inman), the austerity programs instituted in several countries in Europe are merely to save the banks -- principally German and French ones -- that have lent heavily to those countries. As this Wall Street Journal post notes, Inman's article originally bore the headline, "French and German banks need a haircut."

Why, he asks, should sovereign nations accept the demands of banks for austerity programs? Surely, he continues, bondholders, whether they are German banks or anybody else, should be punished for poor lending decisions?

The writer overlooks two rather obvious points. The first is that, in order to continue to run deficits, the sovereign countries which he thinks ought to resist pressure to cut back on their expenditure would have to borrow money to do so. From whom will they borrow it? And if it has been irresponsible to lend them so much money in the past, which they cannot pay back without great difficulty, why would it now be responsible, a good lending decision, to lend them even more? It is true that, if the history of the Argentine Republic (say) is anything to go by, lenders forget previous defaults after a few years; but, putting aside the morality of default, the years following default tend, for obvious reasons, to be rather difficult from the socio-economic point of view.