Saturday, March 2, 2013

How Could Greece and Argentina – The New 'Debt Colonies' – Be Set Free? | Op-Eds & Columns

How Could Greece and Argentina – The New 'Debt Colonies' – Be Set Free? | Op-Eds & Columns

How Could Greece and Argentina – The New 'Debt Colonies' – Be Set Free?

Ha-Joon Chang
The Guardian Unlimited, November 25, 2012
See article on original website
Colonialism is back. Well, at least according to leading politicians of the two most famous debtor nations. Commenting on the EU's inability to deliver its end of the bargain despite the savage spending cuts Greece had delivered, Alexis Tsipras, the leader of the opposition Syriza party, said last week that his country was becoming a "debt colony". A couple of days later, Hernán Lorenzino, Argentina's economy minister, used the term "judicial colonialism" to denounce the U.S. court ruling that his country has to pay in full a group of "vulture funds" that had held out from the debt restructuring that followed the country's 2002 default.
While their language was deliberately incendiary, these two politicians were making extremely important points. Tsipras was asking why most burdens of adjustment for bad loans have to fall on the debtor country and, within them, mostly on its weaker members. And he is right. As they say, it takes two to tango, so those who condemn Greece for imprudent borrowing should also condemn the imprudent lenders that made it possible.

In an Iv-B boom some countries will eventually collapse much worse than others, some will also win. this is like a poker game where winners and losers are separated in the booms and busts of the hands played. Some can experience damage hitting the floor after a free fall in their economy like Greece, others can have damage from hitting the ceiling like the US did in their real estate market when it could not rise any further. The ceiling hit caused the momentum of purchases to falter and subprime borrowers to default. The floor hit caused the momentum of selloffs to stop, for example people taking their money out of the country and then finding there is no way to get the rest out. When this bleeds much of the country dry it hits the floor so the rest of people's money can lose value too. Vulture funds are like Oy vultures in the Roy animal kingdom looking to attack R countries with few allies able to stand together as a team. In this negative sum game all are trying to minimize costs and losses, the vultures are reducing losses on bonds purchased while the countries are reducing losses from the debt overhang. In Iv-B both sides can be imprudent, however both engage in the equivalent of poker bluffs or Chinese Whispers where rumors are believed because they go around with further misinformation constantly added if people think it will give them a competitive advantage. With so much secrecy there is little other information, those who miss getting on the boom might still experience poverty from the bust so there is no easy way to not participate. Often the best way is to buy into a bubble and try to get out early as it collapses.

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