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Bad loans: Europe’s measures displace the problem without solving it

Understanding Finance / Cartoon

By promoting the selling of bad loans to taxpayer-funded bad banks, or by passing on their risk to capital market investors in a non-transparent and unsafe way through securitisation, there is a concern that Commission’s NPL initiative will end up perpetuating the vicious circle that develops when poorly-run banks are kept in business with taxpayers’ money.

“The financial crisis of 2008 should serve as a potent reminder of what happens when unsuspecting investors were sold complex, non-transparent securities whose primary raison d’être was to conceal the poor quality of the underlying assets they contain.

“Replace the phrase ‘non performing’ with ‘sub prime’ and we are back to the fatal and discredited game of ‘pass the parcel’ that was at the root of the last financial markets cataclysm.

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