German Chancellor, Angela Merkal:
"Have politicians got the courage to make those who earn money share in the risk as well? Or is dealing in government debt the only business in the world economy that involves no risk?"
This was said to the German Parliament in response to the situation in Ireland where they are bending over backwards to meet the demands of the state's debtholders. The Irish people are the ones suffering in order to do this. Merkel raises the point that these bondholders should accept they took a risk and can't always expect to get their money back with profit.
This basic principle of risk and reward should also apply to banking. The higher the risks, the greater the reward. Banks have made catastrophic financial losses, resulting in massive bailouts by taxpayers. These taxpayers are the same ones who hold accounts with these banks. The banks resolutely oppose any separation between this everyday banking and their casino-style trading. In the boom years, bankers walked away with billions leveraging on this money, while account holders received nominal rates of interest in return.
Post-bailouts, bonuses are back to what they were while ordinary people pickup the previous bill, never mind get a share of any money being made now. It is arguable that bank account holders haven't really entered a risky arrangement given that their investments come with a state guarantee. However, we know that the speculative activities of banks also come with a state guarantee - to answer Merkel's question, the answer is "no" as international bankers are in the same boat. They are also often holders of government debt, while being backed by governments. It's an almighty mess.
So who is risking anything here, and so who should get the reward?
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