In 2008, Americans were introduced to the philosophy of banks and financial institutions being too big to fail. This concept, and subsequent bailouts by the Fed and taxpayers, entrenched the belief to the banks that the economy rested solely on their operation, and that they deserved bailouts with little or no losses tied to their actions.
This same philosophy is the primary reason why Europe, and the Euro Zone nations, have been unable to coordinate a debt plan that allows for a partial haircut to both sovereign states and financial institutions to save the system. On October 26th, a day considered d-day for the Euro Zone, a last chance meeting to decide on a loan package and direction for the future of Europe was cancelled, resubmitted, and in the end, failed to create a meaningful solution.
One of the premier Euroskeptic think tanks, Open Europe, chimes in with, as expected, a rather bleak outlook on what to expect from today’s Summit which is just now starting: “The hope for a “comprehensive plan” to save the eurozone, as originally touted by the eurozone leaders, looks to be a lost cause. The best outcome we can hope for today looks to be a broad political agreement, with technical details left to be sorted at a later date. Given previous experiences with technical changes (notably the second Greek bailout package and the Finnish collateral deal) it is definitely possible that the deal could be watered down, for example with investors being offered greater guarantees over their involvement in the second Greek bailout or with the bank recapitalisation actually turning out to be less stringent than expected.” – Open Europe via Zerohedge
For more than two months now, the troika of Euro financial committees have made promise after promise of a bailout plan to save the banks, as well as the sovereign debts of Greece, Spain, and Italy. The primary failure has been the fact that none of these entities are willing to accept losses of any kind, and have stalled the process in the hopes of receiving a proverbial ‘full pardon’ for their bad choices and investments. Solvency in most of the banks and sovereign governments are so bad, that even a loss of 20% of their debts would instantly bankrupt their institutions, and even start domino reactions to banks as far away as the US and Asia.
The root problem for the Euro Zone, the US government, and the entire global banking system is none of these entities are willing to incur any changes, austerity, or losses to their own failed programs, and believe that it is their right to receive bailouts on the backs of citizens, versus accepting their medicine for their failed policies.
The solutions for Europe and the US regarding their massive debt problems, will once again fall on the shoulders of the citizens on both continents. Even if these governments do not bailout the Euro Zone, and US banks with taxpayer money as they did in 2008, the central banks of each nation will provide the means, and the cost to the 99% will be massive inflation in each economy.
The actions taken and allowed by the citizens of the United States in 2008 have led to a belief and philosophy that banks are now greater than citizens or governments, and that it is their right to receive bailouts because of the created notion that they are too big to fail.