Daily Telegraph Columnist Argues Against Bailouts, Says ‘Let Some Failed Banks Go Under’

It seems that everyone is getting ready for the next bank collapse. Daily Telegraph columnist Matthew Lynn writes that in the next crisis, some big banks should be allowed to fail. While writing that a new round of bailouts is unacceptable, he makes no mention of the new bail-in law.

Warning that a collapse in bank share prices is likely to continue, he goes on,

t might be a sign that one or more financial institutions are about to run into big trouble, hit by a toxic combination of near-zero interest rates wiping out their profits and huge potential losses from the collapse in commodity prices…. “If so, we need to be prepared for that, and let one or more banks go bust. Another round of bail-outs is unacceptable. The public finances won’t stand the strain, the public would be outraged, and the moral hazard would be too great. If we do see some banks collapse, we should be ready and willing to let them go under.”

This could happen very soon, and he points to the commodity and energy derivatives as the catalyst, writing,

“Hedging contracts on commodity prices are scattered throughout the financial system, and enormous losses may start to crystallize in the next few months.”

He reiterates in his conclusion,

“This time around, if there are severe losses out there, at least a few major banks should be allowed to fail. Otherwise we will never get off a treadmill of never-ending bail-outs.”
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