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Fixing the credit crunch problems the wrong way

We're all aware of the financial crisis due to credit default swaps shaking up the markets, media, politics, and what not. Some of us are feeling the pain, most of us aren't yet.

A few days ago, politicians of the big, capitalist nations convened to agree on a way forward to stablise the financial market and set an end to the crisis. They are planning on doing this by throwing hundreds of billions at the market, buying all the subprime loan packages with the intention to create a new market for them, thus taking the weight off the shoulders of the countless barely-surviving banks and investors, who have written off billions in losses without an end in sight.

Where does this money come from? Taxes and newly printed money. You may not yet feel the effects of this, but you will: taxes will rise, and inflation soar to even higher levels.

Today is Blog Action Day with poverty as the focus, and it's a good occasion for me to state what's long been on my mind.

The strategy by our political leaders to combat the credit crunch is short-sighted, and it fights symptoms, not causes. In fact, it's Robin Hood played in reverse: tax increases and inflation will hurt those most who cannot do anything against it: the poor. On the other side of things, those active in the financial markets will have their damages limited, and new CDS markets might even create more opportunities for those who can.

I strongly oppose the way our politicians are handling the issue, even though I do have small amounts of funds invested in financial products myself, and have already seen the positive effects of their actions.

Rather than throwing money at the markets, we really ought to put those away who have caused all this, those ruthless, greedy ones who have speculated way over their heads, underestimated the risks, and caused this crisis that killed many businesses, threatens to endanger entire countries, and hurts individuals who hardly ever had a choice. Think of it as a driver's licence, and that should be revoked for those who screwed up so royally bad and got us into this situation in the first place. Don't let them speculate again!

Update: Andreas Metzeler notes that he is (rightfully) missing a "what is to be done instead" section in my blog post. I don't have anything to offer on that front, sadly.

I also realise I should have phrased my opposition differently.

Reading this interesting interview with Deutsche Bank ex-CEO Hilmar Kopper (German only) (thanks, Andreas!) helped me understand more that the politicians aren't saving banks, they are saving the system, and that they have little other choice.

Another aspect I haven't previously seen as clearly as now is that the governments are purchasing (and willing to carry) risk for others, to relieve the markets. Risk by itself doesn't cost anything, so it might turn out that the billions they made available won't actually be spent — though I always new that the governments might well come out of this with a profit even.

The whole affair still stinks, and what I truly miss are the actions to prevent those responsible for getting us into this mess in the first place from doing so again.

NP: This Will Destroy You: Young Mountain