Everyone Guaranteeing Everything

If every government guarantees everything, then what good's the guarantee? Everything will be the same. In fact, that is basically what's happened. Since Ireland guaranteed all bank deposits, everyone rushed to take their money out of British banks and put it into Irish banks. So, the UK took over RBS, HBOS, and partially nationalized Barclays. That was last week. Now, over the weekend, we have France and Germany coming up with $1.8 trillion Euro-Zone proposal to guarantee all bank debt for the next five years. How will other banks compete? When US banks have to pay more for borrowing, then the US government will probably step in and do the same thing. This is ridiculous. It is unsustainable. The governments of the world are just printing money as fast as they can just to not fall farther behind.

I'm going to give this rally a little bit longer and then I will start going short again. The governments of the world have not made the fundamentals of the world economy any better. They have not made the banks any safer. All they have done is encouraged people to take their money from some banks (whether they are good or not) and put them into guaranteed banks (whether they are good or not). In the long run, this will result in the collapse of some good banks, and the multiplication of losses in some bad banks.