Excellent article at Pieria. Here’s the tl;dr:
Three times over the past thirty years the major banks have actually been bankrupt. This is what we have learnt:
- Short-term profits mean more to bankers than long-term risks.
- As long as banks are willing to roll over debts, silly loans are not dangerous to anyone.
- No matter how free market an ideologue a Central Banker is, he will overcome his inhibitions and do whatever it takes to save the big banks.
- The first thing the central bankers need to do when the banking system is effectively bankrupt is hide this truth.
Tools Central Bankers have used:
- Get the taxpayers to buy the dumb loans from the banks.
- Cut the short-term rates so that banks can borrow cheaply while letting long term rates remain high. Since banks borrow short and lend long, this means their profits skyrocket.
- Impose austerity.
Read the whole thing here: LATIN AMERICA: THE ARCHETYPAL FINANCIAL CRISIS