JEROEN DIJSSELBLOEM’S COMMENTS ON CYPRUS: “THE DUTCHMAN’S NOT THE KIND OF MAN WHO KEEPS HIS THUMB JAMMED IN THE DAM THE WHOLE DAY THROUGH”

3/27/13

The new and youthful Dutch Finance Minister, Jeroen Dijsselbloem, who is also president of the Eurogroup of eurozone finance ministers, apparently has not spent enough time around the club he recently joined.  Why else would he enrage estimables in the European Central Bank, in the continent’s financial capitals, and even at home among the normally plain spoken Dutch, with his crazy assertions that the investors in an enterprise should actually bear the brunt of the risk of that enterprise’s failure?

Mr. Dijsselbloem had the temerity to suggest that shareholders, bondholders, and uninsured depositors should actually (egad!) take losses when banks fail, as was the case in Cyprus.  While he was careful, perhaps too careful, to say that Cyprus is “no blueprint” for future bank bailouts, he did say that the Cyprus bailout “fit into the new approach toward bank rescues that is gradually evolving.”  (See my posts on the Cyprus situation, 3/20/13’s CYPRUS AND THE “RIDDLE, WRAPPED IN A MYSTERY, INSIDE AN ENIGMA” and 3/18/13’s THE CYPRUS DEPOSIT “TAX”:  “DON’T CRY FOR ME (NICOSIA)!”  Note that the plan Mr. Dijsselbloem speaks rather highly of bears little resemblance to the disastrous plan on which I commented on 3/18.)   For making this outrageous statement, Mr. Dijsselbloem is being castigated for “causing unrest” and “creating uncertainty.”   No one mentioned “sticking up for taxpayers” or “averting moral hazard.”   But such considerations apparently have no part in the calculus of new age finance.

That Mr. Dijsselbloem is being vilified throughout Europe (and doubtless from some quarters over here) for stating that those who take risk should be expected to bear risk shows how goofy modern day, new age finance has become.  The treatment he is receiving also indicates why the world got into so much financial trouble a few years ago and why we are doomed to encounter more such trouble…unless we stop listening to the world’s financial Merlins and regain some measure of common sense.