Altmann says the problem is a classic duration mismatch in the financial models of banks. She says the Government providing short-term liquidity does nothing to solve the problem and that a great deal of pain is necessary before the problem is corrected.
She says the Financial Services Compensation Scheme providing100 per cent guarantees on deposits up to £50,000 has compounded the problem of money moving between banks on the basis of rumour and fear.
She believes the guarantee should only apply to existing deposits, not those made after the fact, and argues that it should only apply to longer-term deposits and not overnight deposits.
Altmann says if the Government does decide to take stakes in banks, it should only be those that cannot get credit rather than those with failed business models.
She adds that the authorities need time to determine which banks are solvent and which are not.
She says: “Capitalism can only survive if there are some losers. This applies to the financial sector as well as everyone else. Banks and policymakers have operated in recent years as if everyone can be a winner but this is impossible. Taking banks into public ownership transfers the problem from the private to the public sector but does not make it disappear.”
Altmann also attacks the fact that some of the bankers who created the problem are still advising on banking reform. She says: “This is like allowing the addicts to control the drug counter. Everyone is addicted to debt and has been living beyond their means. We must find out who can afford to repay and who cannot.”