What is wrong with Bank bailouts

 

Governments world over have been too anxious and naive in bailing out the banks. Like some commentators have already said, the banks are making the governments run in circles. The bank managements have been cooking books and hiding facts with impunity. Unless the bank managements are replaced wholesale, there is no guarantee the taxpayer funds going to the banks will be directed at improving financial markets as intended. Current managements are the cause of the problem. Their greedy policies that have created the mess the whole world is in. These are the people who have bet the future of their organizations for short term personal benefits. There is no way that these people will now start thinking about doing some social good with the support they are getting from the governments. We can see all indications that the are not learning from their mistakes and their past habits are not going to change.

In US, Merrill Lynch management dumped the exceedingly high bad debts BoA, by hiding them at the time of buyout and also awarded themselves huge bonuses in the process. Not even if one member of the management team had the morals to blow the whistle.

In the UK, Royal Bank of Scotland is now awarding their staff bonuses exceeding one billion GBP. That is after selling 70% of itself to the Government in return for bail out money.

In Ireland, Bank of Ireland has awarded its employees a raise while still waiting with a begging bowl for government funding. This, in spite of the whole country reeling with unemployment  – More than 1% of workforce lost jobs in January alone. And when unemployment rate is growing 5 to 6 times faster than either US or UK.

Contrast this with Barclays Bank, one of the very few banks which has resisted going to the government for funding. That by itself is an indicator of the quality of the management. By sacrificing their bonuses, they have shown how much they care for the company they manage.

A wholesale change in the top management should be a precondition any government funding of the banks. It is too much of a risk to the taxpayer otherwise. Yet none of the governments seem to be really concerned in letting the current managements continue their merry ways.  This way, I bet bank managements will use most of the money to boost the bottom lines and fill their pockets with bonuses.

Personally, I think governments should use the bailout money to create a new clean bank and let Citi, BoA et al. solve their problems themselves.