The problem, I think, exists in our concept of the banking system, and is a wider problem than the dirty politics of the Parex affair. States declare themselves ever more willing to have their taxpayers guarentee bank deposits (now up to 100,000 lats per depositer I believe) and banks' creditors, which compromises the states ability to provide for services for its inhabitants and all to easily leads to comments such as "well if we can take from x to give to y, but will that help?" from otherwise intelligent people.

The fact that banks through fractional reserve lending were lending money that didn't have is at the very best a moral hazard, at worst it develops into a form of blackmail. I read with interest the official reasons why Parex needed to be saved (I forget whether it was from the Treasury or the Bank of Latvia - I will check if you are interested), and they seemed rather contradictory. One reason given related to a potential collapse in faith in the banks, although it noted that savings in banks regarded as being safer increased during this period.

I personally think that banks that take risks should be allowed to fail (a certain level of deposits guarenteed). It may hurt in the short run, but in the long run it will encourage a more sustainable system and not undemocratically and unfairly lumber the population with private debt.

Regarding undemocratic accumulation of state debt, I think it is interesting that this is NEVER WIDELY REPORTED - be it the issuance of treasury bonds or the acceptance of loans (the lateset IMF/EU loan being the exception).

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