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The unstoppable rise of government rescues of banks
A maximalist culture of bailouts and state support is bloating and thereby destabilising the global financial system.
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Inflation is back, so central banks are tightening, but the rescue reflex is still gaining strength.
PHOTO: REUTERS
Ruchir Sharma
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As bank runs spread, it has become clear that anyone who questions a government rescue for those caught underfoot will be tarred as a latter-day liquidationist, like those who advised then US President Herbert Hoover to let businesses fail after the crash of 1929.
“Liquidationist” is now challenging “fascist” as the most inaccurately thrown insult in politics. True, it’s no longer politically possible for governments not to stage rescues, but this is a snowballing problem of their own making. The past few decades of easy money created markets so large – nearing five times larger than the world economy – and so intertwined, that the failure of even a mid-sized bank risks global contagion.
