What if there is another way? A better one

There is not a day that goes by without finding out some information that brings to the forefront the bond created between the banking sector and the state. The latest such information was provided by Bloomberg showing that in 2008 US banks borrowed 13 billion USD to survive. This was secret information until made public Bloomberg after a lengthy legal battle.

Now, the information is interpreted in various ways. The most prevailing one is saying that this is how a lender of last resort should act and should be a lesson to the ECB. I beg to differ.

Lender of last resort does not imply bailout

The “markets” are demanding that ECB becomes a “lender of last resort”. Even some very famous economists from across the pond are screaming for the ECB to become a “lender of last resort”. In my view ECB is already one, just not one that matches the new twisted definition. The “markets” are not asking just for more liquidity they are demanding a total bailout of a bad system.

Only two options left for the euro zone

As expected european politicians got themselves in a tight corner (very bad Nash equilibrium). The only ways out are now: break up or ECB becomes lender of last resort. Recent history shows that politicians will manage to convince ECB to accept the lender of last resort function. It does not mean that it is the good choice, it only means that the break-up issue will be pushed few years into the future.