It's the Same Banking Crisis, Stupid! (and Basel III)
Channel: Sam Vaknin's Musings
Date: 16/10/2011

The crisis that started in 2008 is a banking crisis and it is still going strong. Banks all over the world over-leveraged their capital and extended loans unwisely to the undeserving. American financial institutions lent money to homeowners who could not pay back, buried as they were under a mountain of debt. European banks lavished funds on countries such as Greece and Italy which were technically insolvent or illiquid owing to low economic growth rates and bloated public sectors. Chinese "banks" were coerced into bankrolling near-bankrupt state-owned (SOEs) enterprises and municipalities. Consequently, China's financial crsis is imminent as is the collapse of the municipal bond markets in the West. 

Thus, what appear to be disjointed economic crises are actually manifestations of a single cancerous phenomenon: the avarice, recklessness, and inanity of banks. The solution? To Nationalize all the major banks, starting this coming November 2011.
The "sovereign debt" phase of the banking crisis (2010-2) emanated from the realization that lower growth rates throughout the industrialized West were insufficient to guarantee the repayment of debts accumulated by governments. The proceeds of the credits and loans assumed by public sectors throughout Europe and in the USA were ploughed into successive futile attempts to stimulate ailing economies and avert banking crises and panics.

Banks are the most unsafe institutions in the world. Worldwide, hundreds of them crash every few years. Two decades ago, the US Government was forced to invest hundreds of billions of Dollars in the Savings and Loans industry. Multi-billion dollar embezzlement schemes were unearthed in the much feted BCCI - wiping both equity capital and deposits. Barings bank - having weathered 330 years of tumultuous European history - succumbed to a bout of untrammeled speculation by a rogue trader. In 1890 it faced the very same predicament only to be salvaged by other British banks, including the Bank of England. The list is interminable. There were more than 30 major banking crises this century alone. 

That banks are very risky - is proven by the inordinate number of regulatory institutions which supervise banks and their activities. The USA sports a few organizations which insure depositors against the seemingly inevitable vicissitudes of the banking system. The FDIC (Federal Deposit Insurance Corporations) insures against the loss of every deposit up to a certain amount. The HLSIC insures depositors in saving houses in a similar manner. Other regulatory agencies supervise banks, audit them, or regulate them. It seems that you cannot be too cautious where banks are concerned.