Don't Put All Your Eggs In One Basket

DON'T PUT ALL YOUR EGGS IN ONE BASKET

Which came first, the egg or the chicken? Which came first, the bank or the money? Originally, banks were created to meet the need of most people to find a safe place for their savings apart from lending assets. However, history has made the bank service change drastically. In fact, it seems that the public sphere is now responsible of maintaining thebanks’ activity. It does not matter if there is not more money to save, what it is important is to save the bank (not its activity). Why are governments so focused on maintaining the banks out of trouble? Why is so important to save banks from bankruptcy? The main argument is that if one bank went into bankruptcy, panic will cause other banks bankruptcy, the crisis will be even worse and the creditwill disappear. In fact, maybe this is what banks want make us think. Actually, according to Joseph Stiglitz, recipient of the Nobel Memorial Prize in Economic Science, ‘banks are using fear tactics in Europe in which governments believe that if they do not do what they want the world will fall apart’. Thus, it is easy to explain why all the efforts are so focused on maintaining banks aliveregardless of what it costs.

Nonetheless, the truth is that even though banks have been surviving for years, their credits have anyway disappeared. Apart from that, we must take into account that the (undeserved) long life of many banks in Spain is due to the mergers they have pursued with other saving banks. Thus, banks are eventually becoming bigger and bigger until they are too big to fail. As aresult, they fuel their certainty that they will be always be got out of trouble. According to Xavier Sala-i-Martin, professor of Economics at Columbia University, letting the banks fail would be wiser than rescuing them since the result would have remained the same and public funds would not have got involved.

The fact is that Banks are essential for the economy of a country and they do playan essential role in economic growth (since credits are necessary to undertake most commercial and industrial activities and therefore new jobs). However, this premise does not justify the governments’ efforts to mitigate the effects of banks mismanagement. Is this a real way to restore confidence and trust in markets as well as their consequent economic growth? If this is the case, this may not bethe safest path since all the eggs will be put in one basket and the way out of the crisis will only depend of them. As history itself has taught economic growth cannot be based on credit (as it has happened mortgage crisis) or on the public sector (as it happened with the well-know Plan E) – it should be based on both the private sector (the commercial activities) and the public sector.Budget cuts and higher taxes aimed at meeting the deficit targets only make the economic growth even more difficult. This premise is unanimously shared, as it can be read in a Forbes article titled Spain Is Headed For a Major Economic Crash:

‘With Spain’s economy already in a stall, the conservative government […] first raised the top personal income tax rate from 45% to 52%. Then, on March 30,2012 it announced corporate tax increases. In other words, Spain pointed their tax rates up in a situation where they should have pointed them down’.

Taking everything into account (the banks debt solved by public funds as well as the tough measures to meet the deficit targets) it seems almost impossible to find an answer to the economic growth dilemma.

What it is put forward throughoutthese pages is not only the fact that the ‘policy of the terror’ carried out by banks is not effective, but also the need of an alternative – an innovative approach. We do not intend to follow in the footsteps of Iceland, a country where a referendum process was initiated. This referendum was aimed at deciding whether citizens should pay or not for the bank’s debt. This prospect seems quite...