Governments around the world are grappling with the banking system. The entire inter-connected ball of string has been close to unravelling several times. It’s only been perserverance, luck and wads of money that have kept it together. In five years time we’ll be reading books entitled, “Financial Armageddon: How the World Economy Almost Collapsed”. That’s assuming worse things don’t happen. Then we’ll be reading survivalist newsletters bought by barter at the communal water well.

Yesterday Bank of America announced a US$4.2 billion profit - and sent the global stock markets crashing. It wasn’t the size of the result - a few billion dollars is still substantial, even though dwarfed by the trillions in bail-out funds. What panicked global financial markets was the composition of the profit. The vast majority was made in global markets through trading in interest and currency products, equities and commodities. This one-time gain even compensated for a new class of concern - bad credit card debts. Bank of America lost nearly US$2 billion in its credit card business. But that makes perfect sense - if your home has been foreclosed and your car repossessed, what’s to keep you making payments on the Visa? (Read the results in The Australian.)

Kevin Rudd, Prime Minister of Australia, published his vision of the clean-up of the global economy prior to last month’s G20 meeting. (That’s the one in London where the protester was killed died.) In it he refers repeatedly to “toxic assets” and the urgent need to flush these from the banking system. Toxic assets. That sounds awfully nasty. Years ago US Republicans were calling for a ban on “partial birth abortions” (also known as late term abortions).

Politicians have a nasty habit of coining terms that become immediately indefensible for the opposition. Who wouldn’t want to get rid of toxic assets? Who could support partial birth abortions?

Yet pick apart the vitriol and look at the root cause. Toxic assets are nothing more than loans made by bankers using bad lending criteria. Sometimes the bankers were prodded on by legislation demanding equal access to credit. Most times the bankers were driven by the fees and surcharges made when lending - and their insatiable drive for profits.

So toxic assets are mistakes by banks. And now politicians want carte-blanche to get in and buy them out. Without punishing the lenders. By having taxpayers pay for the mistakes of salaried bank managers.

At a recent rally in Washington DC one man waved a placard - “Honk if you’re paying my mortgage”. He didn’t look infected by his toxic asset. Instead every horn-blowing taxpayer was covered in toxic spill-out from the banks of America.