Who loses is important, because of course it is. But it's not as important as recognizing that the loss has happened. For that part is reality and, as it happens, acknowledging reality is a useful first step to getting on with sorting things out.
We can do this at a high level view if we wish. In Britain the financial crisis of 2008, then the lockdowns of Covid, led to a lot of money printing which was used to buy government bonds -- gilts as they're called.
This is called quantitative easing. These bonds were issued at very low interest rates, 1/2%, 1%, that sort of level. Now the Bank of England needs to sell those bonds in order to reverse that policy. But gilts currently pay 5%. So, those 1/2% bonds aren't worth very much, that's just what an interest rate difference means.
So, selling the bonds will lead to big losses and so there are politicians arguing they shouldn't be sold.
This is wrong. The loss exists, the only choice is in how to take that loss.
The money that was invented to buy those bonds is in the central bank reserve accounts of the commercial banks. The BoE pays 3.75% interest on that money. The BoE only gets 1/2% interest on the bond and that's going to continue for 20 or 30 years.
The loss exists. All that can be changed is whether the loss is taken bit by bit, that 3.25% loss a year for 20 years, or in one fell swoop by selling the low price bond today.
We have a choice in how we recognize the loss but the most important thing is to recognise that the loss has already happened.
There is no version of this universe in which we can wish away the loss itself, no policy we can use to make it whole.
We can look at the same thing here in Bangladesh with some of the non-bank financial institutions (NBFIs). As reported: “Bangladesh Bank has finalized a restructuring blueprint to liquidate five insolvent NBFIs that have frozen depositors' funds for over a decade.”
The money that should be there isn't, the loss has already happened. There is no policy which makes all that money reappear, either. That's just something we've got to understand here.
Of course, if it was people stealing the money then they should be pursued and, as far as is possible, the cash be taken back off them.
If the money was lost because these people just weren't very good at investing it, well, that happens. But the paramount fact we've got is that the money is gone, the loss has already happened.
So, all we can do is decide how we're going to recognize that loss. There is no possible policy that brings it all back.
Whether exactly the right policy is what has been announced -- every depositor gets 10,000 Tk back -- is another matter. But given that there's no way of undoing the loss, that's a useful starting point.
Most other suggestions are that the taxpayer should cover those losses. Which is an interesting question really: Why should the taxpayer, most of whom will be poorer than these depositors, have to pay them back?
But, again, that's not the main point that we've all got to grasp here. Which is that the loss has already happened, our only choices are what we do about it. Any claim that there are no losses that have to be covered is simply untrue.
So, some people, somewhere, have lost some money. That's our starting basic fact. Yes, of course we should chase any criminals involved. But as there has been a loss, who has to carry it?
That it should be the depositors themselves doesn't sound like a very terrible idea to be honest.
Tim Worstall is senior fellow at the Adam Smith Institute in London.