terça-feira, março 19, 2013

Living in a creditor dominated Europe

Debt Workout 101 - part 23

The financial crisis is not about north - nouth, it's not about center-periphery.

It's is a credit bubble turned crash, and it's all about foolish overextended creditors and equally foolish over-indebted borrowers, one domineering, the other dominated. If you borrow too much, you are placing yourself at the mercy of the unmerciful creditors.

This is not the first era of the vengeful creditor.  Lending too much is often followed by coercive collection measures. But it is important to note that credit risk  appears to have become more, not less, acute.   The CDS, the secretive over-the-counter Credit Default Swaps, seem to have served only to muddy the waters, to complicate and entangle the creditor/borrower/guarantor relationships which have become more intertwined and confusing.  CDS have also been used to increase  leverage beyond reasonable levels, and to promote moral hazard among the funds providers who ar not the actual creditors since they are not taking any borrower risk.

It makes us yearn for the days of "plain vanilla" commercial banking, when local financial intermediaries took deposits from local savers and made loans to carefully selected  local borrowers, emphasis on the LOCAL, with an interest margin sufficient to absorb the inevitable credit losses.

Taxpayers should protect the amateur local retail depositors, full stop. Their deposits reflect their real economic activity.  Everyone else is a professional investor (read speculator), chasing incremental returns, taking any risks for the smallest yield pick up. They can certainly absorb the occasional bad consequences.

Mariana Abrantes de Sousa
PPP Lusofonia
Quem empresta, manda.  Quem empresta MUITO, manda muito mais, se deixarmos
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