"An nescis, mi fili, quantilla prudentia mundus regatur?" - Axel Oxenstierna
("Do you not know, my son, with how little wisdom the world is governed?")
Watching Newsnight report on European banks last night was a truly shocking experience. Neither Mr Paul Mason, who prepared the report, nor Mr Gavin Esler who hosted the discussion, nor the invited pundits Mr Raghuram Rajan and Ms Gillian Tett, went beyond a shallow analysis that described how really bad it was (using some rather vacuous parallels, e.g. "a sticking plaster"). But we know all that: this has been blatantly obvious since the financial crisis erupted towards the end of 2008.
The only sound words of advice from the experts were that we should find out more precisely how bad the banking situation was (implying the size of liquidity hole, i.e. the level of money multiplier). Mr Raghuram Rajan added that there should also be a programme to deal with the banks that are found to be in a bad shape. But this is all trivial and blatantly obvious since 2008. You do not employ experts to find out these. It must have insulted intelligence of any half sober viewer. (But who is actually sober at the time of Newsnight?) This has been described in the "The largest heist in history" immediately after the crisis erupted.
If it takes experts and pundits well over a year to work out such basics, that are not even a start of understanding the causes and mechanism of this crisis, little wonder why got into such mess in the first place and even less hope that the crisis will be resolved peacefully. It provides disturbing reassurance that we are heading for quite a disruptive end to it. The Great Depression that started in 1929 ended with World War Two ten years later. It seems increasingly likely that an event of a similar scale will sort out the current mess since neither the politicians nor the expert have even a basic understanding what they are dealing with.
And the causes are actually trivial. They are huge and of a criminal nature: using a pyramid scheme mechanism the money multiplier (leverage) was ballooned massively. To solve it, it is necessary to reduce it: either by engineering high inflation (printing money solves the liquidity shortage) or liability write downs (less banks liabilities solves the liquidity shortage), or, of course, some combination of the two. The entire process for the UK, including how to protect the taxpayers' interests, has been described in "Prime Minister, sort out this mess, please" but it applies to eurozone (and the US) too. But with clueless (or corrupt) politicians and experts there is very little, if any, hope for an orderly solution of this crisis. "Do you not know, my son, with how little wisdom the world is governed?"