I was listening to “World Have Your Say” from the BBC World Service back on Thursday, and they were carrying on about the Italian debt crisis - which of course followed immediately on the heels of the Greek debt crisis and I got to wondering - why is it that the taxpayers have to solve this problem?
Why is there a problem?
If the Italian government is unable to pay their bonded debt as it comes due, or is unable to make interest payments on the debt that is issued - sure, there’s a problem. But if the problem is that banks and “the markets” are trading the bonds at increasingly higher interest rates - why is THAT a problem for the Italian government?
How much attention is being paid to the “markets” trading - speculating - up the rates on these bonds? If private investors are disappointed because their opportunities to move money is diminished, why should the taxpayers care? If the big European banks are “in trouble” because of this speculation, why is that a taxpayer problem?
We have a truly screwed up way of looking at things when taxpayer money is required to guarantee the financial health of banks that make poor decisions.
Let’s think about AIG as an example - if banks (including investment banks) were entering into these credit default swaps, it was incumbent upon them for the stability of their institution and to protect their clients’ money that they engage in routine underwriting before making the contract.
Evidence will show, MUST show that each of these banks KNEW how much credit default business AIG was writing. Any reasonable person would have insisted on reviewing AIG’s asset depth before engaging in these agreements.
What has happened, though, is that these banks entered into what were “liar’s loans” in their own sphere - they KNEW that AIG couldn’t complete all of the counter-party agreements. They KNEW that their own institutions would suffer when and if AIG failed to pay up. And, yet - they wrote ENORMOUS business that was not supported by rational calculations just to have a very very short term personal profit.
And, now the taxpayers should pay up because they were gambling with money that wasn’t theirs?
Before any fund or bank invests in a country’s bonded debt, a reasonable credit review including that government’s ability to repay is required by their very charters and what few regulations still oversee their business.
There is so much that is rotten here, and so little being done about it save for to move these gambling debts onto taxpayer’s backs that it defies the understanding.