We've got to get this firmly in our minds that they looted the banks. As this newspaper reports: “Nearly Tk33 of every Tk100 lent by banks is now in default.”
Now, some of this is just banking. There're always some loans that go bad. People borrowed and things didn't work out. The amount of interest charged on loans reflects this, the knowledge that some will not be repaid.
So, every loan has to pay 1%, or 2%, more, to cover the 2 or 3% of loans that don't get repaid. It's just part of the business.
But one third of loans going bad? That's either the effect of a dreadful recession -- depression -- or evidence of looting. Bangladesh hasn't had a recent depression, therefore our conclusion should be that, well, you can add in the rest.
As to who “they” were or are, we can all have a good guess. But we'll not mention specific names, obviously, since libel laws do exist.
But, well, people with good and close connections with the previous political regime would be a good guide.
As to why they looted the banks, that's easier, as Willy Sutton said. He was a US bank robber and when asked why he stole from banks said: “That's where the money is.”
And if you've got political power, it's a lot easier to steal from the banks than it is from the government.
Certainly, the government spends a lot of money, but stealing tax money is still difficult. But banks exist to make loans. So, if you've political power, then you can force -- or even just “persuade” -- the banks to lend you money which you've no intention of repaying.
This does become a loss of tax money eventually, as we're finding out. Because the government that comes afterwards has to do something about those banks and those loans.
Which is what is being done and is what has to be done. As the banks have been looted, we have two, and only two, choices.
- We allow the banks to go bust -- someone's stolen all the money after all -- but that then means we have no banking system. Yes, of course it's some banks, certain banks, that were looted, not all of them. But that's not how we will behave.
We'll stop depositing our money in banks -- as has been happening -- and that means we'll all be poorer in the future. Because what banks do, as an economic factor, is repurpose our savings into the investments that make the future richer. If we all stop using banks for our savings this will not happen.
- So, we have to take the other option, which is to save those banks that were looted. This means taxpayers have to make sure that depositors get repaid. Maybe not everything, maybe not quickly, but at least enough that everyone doesn't lose all confidence in the banking system as a whole.
We also have to prosecute those who took the money. Bankrupt them for not repaying. Take their businesses off them. A few in jail would be a very good idea indeed.
We also need to make sure that the political system does not determine such lending again in the future. There's no point in getting rid of one bunch of thieves just to allow another to repeat the exercise.
But one more thing. Some of those loans were just looting. But many of them -- even most of them -- were for at least attempts at investing.
We all recall the minister who tried to build an international property portfolio, right? Who bought at the peak and has been seeing the value of the properties falling since he bought?
That's the thing to really remember from this. Those in politics, or even those closely allied with politics, do not in fact know what to do with the money.
They cannot even invest free money profitably. Therefore, the new system should not only insist upon no looting but also no investing by politics, politicians, and the politically associated.
Thieves are always with us, and it's a very good idea not to give them access to our money. But politicians, the politically aligned, are also -- even if honest -- terribly bad investors. So we should also not give them access to our money.
Tim Worstall is a senior fellow at the Adam Smith Institute in London.