Another day passes, another taxpayer bailout of a banking system. The Irish episode also demonstrates the perils of overseas exposures... From Business Spectator's Karen Maley today:
"According to figures from the Bank for International Settlements, Australian banks had a combined exposure of $US3.72 billion to Irish borrowers at the end of June this year...it would represent an unwelcome development for the Australian banks which are reporting surging profits as a result of steep declines in their domestic problem loans. The collapse of the Irish banking sector provides a stark lesson in the dangers of government guarantees of private sector debts."
Surely the lesson from the Irish experience has nothing to do with taxpayer guarantees--after all, even more taxpayer money is now reluctantly being invested to salvage the entire Irish banking system. This time around it is European taxpayers who are being forced to come to the party. The much more important lesson concerns the intrinsic frailties associated with these business models. One decade they are up, the next they are down. And when they are down, the State is invariably called upon to furnish the insurer of last resort support. Food for thought.
