Posts Tagged ‘default’

Just requoting Paul Kedrosky’s post today:

What people don’t get about sovereign debt is that countries are sharks when it comes to debt and default. That is the real lesson of research and writing and history in this area – that countries have been messing around, defaulting and restructuring in debt markets for hundreds and hundreds of years. Defaults, busted banks and the like is what happens when you lend to countries that have much more experience and cynicism about their use of debt than you think they do.

This blogger through firsthand experience in a commercial bank’s risk and asset division, is witness to the financial wizardry the modern financial system employs to build the mountain of debt on which our capitalist societies exist on. In the news we are also witness to the horrors that mismanagement of debt and currency can create.

Kedrosky is not a lone voice here. We’ve captured the sentiments of others
like Gerald Celente, Max Kaiser, and Peter Schiff all of whom have put up credible arguments about how tentative and fragile a system based on debt is.

Not all who understand the system are speaking up vehemently against it. Our favorite speculator George Soros certainly understands the goings-on but is content to “game” the system for profit (and successfully too).

What this blogger finds interesting is despite all these critiques, the system continues unabated–notwithstanding the ever increasing magnitude of crises that recur. The arguments put forth by the pundits are actually dated–these sentiments have been around for as long as a monetary system has been around. Our favorite skeptical empiricist, Nassim Taleb, blames moral hazards for perpetuating the flawed system, but even the question of moral hazards isn’t new.

After all isn’t rewarding someone for “bad” behaviour the crux and aspiration of prosperity and decadence? The whole system is rigged to feed on itself! So far the common alternatives to the flawed system, barring a return to primitive times, propounded by the pundits range from a form of “modified capitalism” (shades of the Austrian School) to more “radical socialism” (e.g. Zeitgeist, Venus Project).

Which is why it far from surprises this blogger that “experience and cynicism” are the placeholders that Kedrosky chose to describe what underpins the motive of governments regarding debt. There are those who complain and those who game, but the last bucket are those who still choose to participate in the system–maybe in a fit of realism, maybe fatalism.

Meanwhile someone please buzz this blogger when and if we decide to let go of this monetary system and its sydstem of debt.

“Sent from my BlackBerry® wireless handheld”

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On the newswires recently:

QUITO, Ecuador – Ecuador vowed Friday to delay a $30.6 million interest payment on its foreign debt while it investigates possible irregularities in the contracts, sending its benchmark bonds and credit rating tumbling as default fears soared.

Finance Minister Maria Elsa Viteri said Ecuador won’t make Saturday’s payment, and is instead invoking a 30-day grace period to review an audit of 2012 bonds worth $1.25 billion. The audit is due next Thursday.

Standard & Poors devalued the country’s long-term debt rating by three notches, from B- to CCC-, citing the “severe uncertainty” that Ecuador will ultimately pay up. The ratings agency warned it would further slash its rating to “SD” or “selective default,” if the government signals plans to restructure its debt.

Full article here.

Another article on BBC:

Last week Ecuador won itself a place in economic history books when it became the first country to default on its Brady debt.

The default doesn’t just set a first for Ecuador, it is also likely to set a precedent for how government and investors behave when borrowers default.

The question is: whose responsiblity is it when a borrower can’t pay the money it owes?

Last year, official lenders, such as the IMF, came under fire for effectively bailing out private investors with public money during and after the Asian crisis.

The interesting thing? (more…)

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