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MACROECONOMICS


remains, why hasn’t the ECB followed the Federal Reserve’s lead and pursued this option?


The Moral Hazard Objection


Perhaps it is because banks that know they will be rescued from their bad loans will keep making bad loans. But the same moral hazard would ensue from a bailout or a bail-in, which all


virtually interested


parties seem to be advocating. And as was observed in an article titled “Italy:


Banking


Crisis or Euro Crisis?”, the cause of the banks’ insolvency in this case was actually something beyond the banks’ control – the longest and deepest recession in Italy’s history. Werner argues that


the moral


For a long-term solution, the money that is now created by banks in pursuit of their own profit either needs to be issued by governments (as has been done quite successfully in the past, going


hazard argument


should instead be applied to the central bank, which actually was responsible for the recession due to the massive credit bubbles its policies allowed and encouraged. Rather than being punished for these policies, however, the ECB has been rewarded with even more power and control. Werner writes:


Tere is thus a form of regulatory moral hazard in place: regulators that obtain more powers aſter crises may not have sufficient incentives to avoid such crises.


banks. Werner quotes David Shipley on Bloomberg:


Central bank officials may be hoping that by keeping the threat of financial Armageddon alive, they can coerce the region’s people and governments into moving toward the deeper union that the euro’s creators envisioned.


ECB and EC officials claim that “there is no free lunch” and “no alternative,” says Werner. But there is an alternative, one that is cost-free to the people and


back to the American colonies) or it needs to be created by banks that are required to serve the public interest. And for that to happen, the banks need to be made public utilities.


Ellen Brown


President of the Public Banking Institute Author of:


Web of Debt and


Te Public Bank Solution What May Really Be Going On


Werner and other observers suspect that saving the economies of the peripheral eurozone countries is not the real goal of ECB policy. Rather, the ECB and the European Commission are working to force a political union on the eurozone countries, one controlled by unelected bureaucrats in the service of a few very large corporations and


FX


the government. Te European banks could be rescued by the central bank, just as US banks were rescued by the Federal Reserve.


To avoid the moral hazard of bank malfeasance in the future, the banks could then be regulated so that they were harnessed to serve the public interest, or they could be nationalized. Tis could be done without cost to the government, since the NPLs would have been erased from the books.


FX TRADER MAGAZINE January - March 2017 67


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