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
Read more about in Debt Workout 101 in http://ppplusofonia.blogspot.pt/p/crise-da-eurozone.html
Comented in the Economist:
ResponderEliminarEconomy, not geography, is destiny.
Put aside the dangerously simplistic north/side shorthand that the some journalists insist on using in lieu of international financial analysis, and you will recall that (cross-border) creditors cannot be better than their debtors for long.
The Bundesbank and the other NCBs would do well focus on the core business of prudential regulation and reflect on esoteric issues such as regulatory failures and the moral hazard created by bailing out overextended and over-leveraged banks and cross-border speculative creditors,at the expense of local savers instead of populist studies about whether people are more or less house-rich and/or cash-poor in the various countries.