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Bill Black – The Celtic Chimera

William K. Black of New Economic Perspectives has a long, damning and eloquent article on the Irish crisis.

..The Irish government’s response to their epidemic of fraudulent lending has been so exquisitely awful that it (A) demonstrates the catastrophic costs of deregulation, desupervision, and deifying finance, and (B) allows one to illustrate why it is essential to combine good analytics, skepticism, courage, and integrity in responding to such epidemics.

The alert reader will have noted the nation whose banks have large, unrecognized losses on debt among each of the PIIGS — Germany. German banks acted like drunken “Girls Gone Wild” as soon as they were approached by a foreign borrower. Germany’s Bank Gone Wild were hooked on yield — for a trivial increase in yield, without any meaningful due diligence, they made massive unsecured loans to many of the most fraudulent borrowers throughout Europe. Borrowers engaged in control fraud have two great attractions for bankers gone wild — they typically report extreme profitability (which makes them appear to be creditworthy to the credulous) and they are willing to promise to pay higher interest rates). Their promises, of course, have all the reliability of the producers’ of “Girls Gone Wild” promises that the girls will be able to launch a film career if they shed their clothes.

I wish more economists wrote like that. Great fun.

Posted in Money Systems.