Debt Laundering

[_w_]

I've come across this blog today and I find that piece after piece I agree with just about every single word. The author is a good writer with a good grasp of what is going on: he makes complicated thing easy to understand. I read one commenter over there that said it had been mentioned on hpc but didn't know about it until today so here it is.

http://golemxiv-cred...laundering.html

There are lots of good pieces in there.

This is NOT and never was a sovereign debt problem. It has always been a private bank problem which is merely being laundered through some unfortunate nations.

I am not saying certain nations do not have their own governmental debt problems. They do. Some of them are large and are due to stupidity having mated with greed. BUT, an insolvent nation is not the end of the world. There have been many insolvent nations and we and they are still here.

What has made this a crisis is that almost exactly as banks knowingly lent out money to people whose only prospect of paying them back was if the good-time bubble continued for ever, so the banks have ALSO been just as blindly avaricious when it came to lending to nations whose prospect similarly rested on the bubble never bursting. And these TWO streams of greedy stupidity have flowed together and flooded us all.

Nations refused to let their banks go bust because their sclerotic political systems had some time before been captured and suborned by their financial elite. The common state of affairs in any banana republic. Our banana nations issued a torrent of new debt to add to what they already had, in order to have the cash to 'save' the banks. Other banks, and sometimes even the same ones as were being 'rescued', bought this debt (which for a bank is the same as lending money).

The result is that insolvent banks became the creditors of the nations trying to save them (if this sounds incredible read about Greek banks and who is exposed to Greek sovereign debt losses) while the nations, who were already in trouble, sank under a mud slide of their own creation, of new debts taken on in the name of saving unsaveable banks.

Together this incestuous imbecility bound nations and private banks into a tight suicide pact. Now this might not have been so bad if the banks and the nations had been paired off neatly within national borders: Greek banks tied to Greece etc. But the ties run across national boundaries.

The stupid nations are in the so called periphery of Europe the greedy banks are at the centre. Thus we have the very worst of all situations thanks to the unstinting genius of our bankers hand in glove with the eager connivance of our politicians - who were simply and principally trying to make sure that they would get a lucrative consulting or board member sinecure after they left politics.

This suicide pact suited the banks in two ways. Obviously they enjoyed being bailed out. But it also laundered their debt into nations so that the whole crisis could be re-branded in a much more bank friendly way. Away went the bank debts and in came sovereign debts. Same money, same debts, new packaging.

So let us be clear. The reason Ireland is a crisis, Greece was and will be once again and Portugal may soon become one, is because if they or their banks are allowed to declare bankrupcy, it wil bring down Germany's and France's banks. It is the debts of the banks in the central nations which are being bailed out whenever Ireland gets ECB money. The money goes from Ireland straight to Germany and France. With every bail out, the Irish people are being forced to pay the bad debts of German and French banks as well as their own.

Why not have Germany and France sort out their own banks? How much nicer to launder the debts and the blame through someone else.

No one is clean in this crisis. No nation, no people, no bank. But let us at least try to be clear and honest with ourselves even if such honesty is constitutionally impossible for our financial and political elites.

Edited November 26, 2010 by _w_

[interestrateripoff]

Good piece, although I fear it's been a problem slowly building through the decades.

This game of pass the debt has been going on for years, the figures now are just mind bogglingly big.

They are desperate to save the system as no one wants to admit the whole economy is one massive ponzi scam.

[okaycuckoo]

He has an intriguing piece on Who Bankrupted Ireland? He talks about Hypo Real Estate, which was big news in Germany a couple of years ago.

http://golemxiv-credo.blogspot.com/2010/11/who-bankrupted-ireland.html

Anyone have recommendations on his book?

[_w_]

He has an intriguing piece on Who Bankrupted Ireland? He talks about Hypo Real Estate, which was big news in Germany a couple of years ago.

http://golemxiv-cred...ed-ireland.html

Anyone have recommendations on his book?

I don't know about his book. But yes, as that article shows he's got some insight.

[interestrateripoff]

So this ultimately is the biggest bank bailout.

And still they can't contain it.

[R K]

I suppose he ought to go one step further and ask why German banks are stuffed with debt lent to piggy and peripheral Eussro member states. What structural/cultural flaw led them to this position?

But yes, it's the forced subjugation of the poorer EUSSR proles in order to protect German wealth and dominance. They need to take their losses but refuse so to do because.....well, because they're German and they can. So far....................the story isn't over just yet.

[campervanman]

I've come across this blog today and I find that piece after piece I agree with just about every single word. The author is a good writer with a good grasp of what is going on: he makes complicated thing easy to understand. I read one commenter over there that said it had been mentioned on hpc but didn't know about it until today so here it is.

http://golemxiv-cred...laundering.html

There are lots of good pieces in there.

With every bail out, the Irish people are being forced to pay the bad debts of German and French banks as well as their own.

The Irish didn't have to have a house price boom. The Irish could have had legislation to prevent unaffordable personal debt. The Irish chose not to. Why should they not pay it back?

Edited November 26, 2010 by campervanman

[_w_]

With every bail out, the Irish people are being forced to pay the bad debts of German and French banks as well as their own.

The Irish didn't have to have a house price boom. The Irish could have had legislation to prevent unaffordable personal debt. The Irish chose not to. Why should they not pay it back?

The Irish housing loans represent a small fraction of Irish bank debts.

[okaycuckoo]

I suppose he ought to go one step further and ask why German banks are stuffed with debt lent to piggy and peripheral Eussro member states. What structural/cultural flaw led them to this position

Dunno.

Why are UK banks stuffed with the same crap? Why did US banks get involved?

Because they are all pretty much the same, some worse than others. The flaw isn't structural or cultural - it's plain fraud, a universal vice. There's your flaw.

[Dorkins]

The Irish didn't have to have a house price boom. The Irish could have had legislation to prevent unaffordable personal debt. The Irish chose not to. Why should they not pay it back?

If I default on my credit card, and you and I are both British, should you be responsible for repaying my debts? Of course not. The contract was between me and the bank and has nothing to do with you.