Tom Dyson writing in Daily Wealth has an interesting article about the stupidity of Government intervention.

In September 2007, Britain’s most overleveraged mortgage bank – Northern Rock – asked the government for an emergency loan. When its customers heard the news, they rushed to the nearest branch of Northern Rock to withdraw their savings. They formed queues around the block.
The next day, the government announced it was guaranteeing Northern Rock’s deposits, and the panic went away. Then a funny thing happened…

Suddenly, people started draining money from all the other banks in Britain and depositing it at Northern Rock!

The government intended to make the financial system stronger by shoring up Northern Rock. But it made the financial system weaker by undermining the financial strength of all other banks. In the end, the government ended up nationalizing the whole system.

He goes on to explain that the same thing happened in Ireland.  At the time it was the weakest financial system in the euro-zone. 

Then it guaranteed all its deposits.  All the money in Europe started flowing into Ireland.  This weakened the banking systems in the other European countries, and they had to guarantee their bank accounts, too.

So the government thinks it’s helping unfreeze the credit markets. But it’s actually making them worse.

Government stimulus does not stimulate, it stifles. So when you look at the current levels of government intervention all around the world… India, Australia, China, Taiwan, Britain, Europe, and the biggest of all in America… you have to conclude it will lead to the biggest loss of productivity ever.

When the government controls an economy’s financial decision-making, no one makes any money.  This is why the government interventions haven’t had any effect so far.  It’s also why stock prices will fall to valuations far lower than at normal bear-market bottoms of the past few decades. 

It is time for the Governments paymasters, that is the tax payer to say enough is enough.  You cannot borrow you way out of a financial crisis that was caused by over borrowing in the first place.