Tuesday, November 17, 2009
It’s official: Banks’ only strategy is to fleece the taxpayer
This BoE report argues that over the decades the state's support for banks has simply encouraged greater risk-taking by the latter. The banks have learned that their gains will be privatised, and losses socialised, so they have adapted their strategies accordingly. They have learned that greater risk means a greater upside and a greater downside, but with the state at their backs they know they can harvest the upside (an Alice in Wonderland world where "everybody wins, everybody gets a prize") and export the downside to the state. High leverage (risk) fully accounts for banks' return on equity to 2007, and for the subsequent collapse of those returns..