Krugman on banking
This carelessness [of where people store their money] offers a tempting opportunity to unscrupulous businessmen: just open a bank, making sure that it has an impressive building and a fancy name. Attract a lot of deposits, by paying good interest if that is allowed, by offering toasters or whatever if it isn’t. Then lend the money out, at high interest rates, to high-rolling speculators (preferably friends of yours, or maybe even yourself behind a different corporate front). The depositors won’t ask about the quality of your investments since they know that they are protected in any case. And you now have a one-way option: if the investments do well, you become rich; if they do badly, you can simply walk away and let the government clean up the mess.
This is a quote from Paul Krugman’s The Return of Depression Economics and the Crisis of 2008, which I’m reading at the moment (as if there weren’t enough bad news in the papers and on the TV news already).
This is Kurgman writing about the Japanese banking scandals of the late 80’s and early 90’s. For those of you unfamiliar with the Irish banking system, this could have been written about Anglo Irish Bank in the past week.
The PWC report on Anglo was released over the weekend. Should make interesting reading.
