Failure and bailout of Banco Espírito are no surprise

The failure and bailout of Banco Espírito Santo in Portugal "is surprising," says your "Portugal Unveils Rescue for Espirito" (Money & Investing, Aug. 4), because "a few weeks ago the Bank of Portugal said the lender had enough capital." To the contrary, there is nothing in the least surprising about that. Anyone who has seen a few financial crises knows that one of their typical occurrences is for central banks and governments to offer assurances that things are all right, when in fact a disaster is approaching. Central banks and governments have strong incentives to issue such optimistic pronouncements to try to keep the game going while they scramble about trying to figure out what is happening and what to do.

Alex J. Pollock

American Enterprise Institute

Washington

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Alex J.
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