More banking sector bailouts? When will the madness end?

When will we the lessons of the last round of bail-outs?

The IMF Global Stability Report suggests that banks might be €200-€300 billion down as a result of the Eurozone crisis.  The predictable cry has arisen that this shortfall should be made up by governments.  Really?  So, let's see.  Setting aside the bailouts of late 2007 and early 2008 and just starting when it got serious, we have the bailouts of Fannie Mae and Freddie Mac in early September 2008, which triggered the collapse of just about everything (most notoriously Lehman Brothers), and the bailouts of Autumn 2008.  Then we had the bailouts of Spring 2009.  The US version of quantitative easing involved the Fed buying up loads of the loss-making collateralised mortgage obligations that triggered the bust, so the bailouts continued through 2009.  Then from early 2010 we started re-branding our banking sector bailouts as "sovereign debt bailouts", as if changing the name would make it any less so that these were bailouts of banks.  So we had the "Greek" bailouts of the European and US banking sectors of Spring 2010.  Then the "Irish" bailout of the European, US, and UK banking sectors of Autumn 2010.  Then the "Portuguese" bailout Spring 2011.  Then the "Greece II" bailout of Summer 2011.  All banking sector bailouts.  All good money thrown after bad.

Four years.  Four years!  And still it appears that many folks don't get it.  It's not simply that these were banks that made some past losses and should have been able to raise capital to replace them but the Middle Eastern, East Asian and Norwegian sovereign wealth funds irrationally decided not to pony up the dough.  Some of these institutions simply could not continue as they were.  They have become value-destroying enterprises that need to be significantly restructured.  They need staff fired, assets written down, business lines shut.  There will be redundancies.  Some banks will cease lending to the kinds of enterprises they lent to previously, so some business and individuals will have to seek their credit elsewhere.  When governments refuse to allow these things to happen, but instead chuck money at the problem, they don't make the problem go away; they make it worse.  All they achieve is to retard the necessary and healthy process of restructuring, and extend the period of value-destruction.  In the meantime, they tax the poor to provide money to bail out the rich.  This is immoral, as well as economically destructive.

If Eurozone banks are bust, their creditors should make losses.  They lent the money; they got paid interest for taking a risk; the risk went bad; tough!  If the rich people that lent money to the banks weren't up for risking losing money, they shouldn't have lent it to the banks in the first place.  It's not up to poor people to pay taxes so that rich people can be spared the consequences of their gambles and mistakes.

Surely, surely after more than four years of bailout after bailout, even the most blindly stubborn fan of government intervention can see that it's not working.  Surely it's time for the madness to end?