Before the debt ceiling is lifted, which it must be, Congress must dare to at least pose a question.

Note 1988: "Assets for which bank capital requirements were nonexistent, were what had the most political support; sovereign credits. A ‘leverage ratio’ discouraged holdings of low-return government securities” Paul Volcker

A letter in the Washington Post

Before the debt ceiling is lifted, which it must be, Congress must dare to at least pose a question.

In much of Peter Orszag’s Nov. 22 op-ed, “GOP threats to weaponize the debt limit are dangerous,” one can agree with his conclusion, but when he mentioned, “The evolution of debt is also influenced by the economy, market interest rates and other factors, but those are mostly outside the control of policymakers,” he omitted vital aspects. Let me explain it with a question:

What would the United States’ public debt be in the absence of regulatory subsidies, such as bank capital requirements with decreed risk weights of zero percent against federal government debts and 100 percent against citizens’ debts; copious amounts of Treasury purchases by the Fed with quantitative easing programs; and the preaching by modern monetary theory fans that has definitely promoted a dangerous lackadaisical attitude when discussing the limits of public debt?

Yes, Congress must approve increasing the debt level. It’s too late to do otherwise, but to do so without even trying to answer that question would be to irresponsibly kick the debt can forward and upward with disastrous consequences.

And, by the way, the Supreme Court should look at what the Founding Fathers might have thought about the aforementioned risk weights.

PS. The links displayed above are the ones placed on the web by the Washington Post

PS. Another letter in the Washington Post: The capacity to borrow at reasonable rates is a strategic sovereign asset that should not be irresponsibly squandered away.

There cannot be a road more conducive to debts turning unsustainable, than that of awarding credits just because they are sustainable.

If the debt ceiling is broken, will the Fed have to negotiate a platinum coin at the pawn shop?

Here what the US Supreme Court should look into, if it dares

Déjà vu! Not the first time I warn about a crisis can being kicked forward. The 2007-2008 was.

The Easy Debt governments have counted with the last decades have kept bureaucrats, politicians and their dependent on Easy Street

February 2023 Tweet

Regulators allow banks to hold much less capital/equity against government debt, bureaucrats/politicians spending now future tax revenues, than against loans to small businesses & entrepreneurs, those who could generate future tax revenues

Smart? Hell no!

“Moral Hazard: If governments believe that banks and financial institutions will always be willing to invest in their debt due to regulatory advantages, they may have less incentive to pursue responsible fiscal policies.” ChatGPT OpenAI #AI

Current risk bank capital/equity requirements, which favor banks holding public debt over loans to e.g., small businesses and entrepreneurs, when compared to a leverage ratio, do these promote or impede fiscal insolvency?

What about a 1 percent AIDUS tax on all purchases, to help repay all public debt that in so many ways, shapes, forms and places, e.g., USAID, has been so much wasted?

Why, when I hear or read about MMT, do I start humming "Love Potion Number Nine"?

Love Potion Number Nine

I took my troubles down to Madame Ruth

You know that gypsy with the gold-capped tooth

She's got a pad down on Thirty-Fourth and Vine

Selling little bottles of love potion number nine

I told her that I was a flop with chics

I've been this way since 1956

She looked at my palm and she made a magic sign

She said "What you need is love potion number nine"

She bent down and turned around and gave me a wink

She said "I'm gonna make it up right here in the sink"

It smelled like turpentine, it looked like Indian ink

I held my nose, I closed my eyes, I took a drink

I didn't know if it was day or night

I started kissing everything in sight

But when I kissed a cop down on Thirty-Fourth and Vine

He broke my little bottle of Love Potion…

When all subsidized fiscal space, borrowing at capacity at reasonable rates and seigniorage has been consumed, and Easy Street ain’t no more, from what cliff will governments throw us out, from that of deep recession or from that of runaway inflation, or from both at the same time?

Notgelt – emergency money a timely British Museum exhibition in times of Covid-19

     

MMT’s High Priests assure us their intention is to issue money only to make sure that all unused resources are put to a productive use, but never so much as for inflation to take off. Hah! As if inflation is such a precise concept with equal consequences for all. Those who own shares and houses have clearly enjoyed the current “low” inflation much more than those who don’t.

A letter in Washington Post: The capacity to borrow at reasonable interest rates is a strategic sovereign asset

In his April 12 op-ed, "How economists led us astray" Robert J. Samuelson wrote, "What we conveniently overlooked was the need to preserve our borrowing power for an unknown crisis that requires a huge infusion of federal cash."

Yes, the capacity to borrow at a reasonable interest rate (or the seigniorage when printing money) is a very valuable strategic sovereign asset, and it should not be squandered away by benefiting the members of the current generations or with some nonproductive investments. 

So, when public borrowings are authorized, that should require Congress being upfront that a part of that borrowing capacity is being consumed, which has a cost, and give an indication of who (children or grandchildren born what year) are expected to have to pay back that debt.

Mr. Samuelson also referred to "low dollar interest rates [that] will keep down the costs of servicing the debt." Sadly, those current "low dollar interest rates" are artificial rates, much subsidized in that since 1988, with Basel I regulations, banks are not required to hold any capital against Treasuries, and of course subsidized by the Federal Reserve purchasing huge quantities of Treasuries.

PS. A reverse mortgage on our children’s and grandchildren’s future

A February 2023 Tweet: "Regulators allow banks to hold much less capital/equity against government debt, bureaucrats/politicians spending now future tax revenues, than against loans to small businesses & entrepreneurs, those who could generate future tax revenues. Smart? Hell no!"

Borrowing capacity is an asset that could end up having been consumed and squandered.

The capacity to borrow at a reasonable interest rate (or the seigniorage when printing money) is a very valuable strategic sovereign asset. 

It should not be squandered away by the generation in turn only to benefit its members, or with some non-productive investments. 

When public borrowings are authorized, that should come with a clear recognition that a part of that borrowing capacity is being consumed, and with an indication of who (children or grandchildren born what year) are  expected to have to pay back that debt.

Here a letter on this published by the Washington Post in 2020

PS. Here's another letter on the subject published by the Washington Post November 2022

http://unsustainabledebtsustainability.blogspot.com/2004/11/bank-regulators-are-favoring-too-much.html

PS. How much would the MMT nonsense have advanced, had banks had to hold the same amount of capital/equity against loans to the government than against loans to the citizens?

PS. Have we not already imposed a too large reverse mortgage on our economy?

PS. When in 1988 bank regulators assigned America’s public debt a 0.00% risk weight, its debt was $2.6 trillion, 50% of GDP, now way over $28 trillion, about 125% of GDP, and it still has a 0.00% risk weight. When do you think that risk weight should increase to 0.01%? 

PS. At what level does public debt turn into a bomb that cannot be defused with traditional orthodox economic political tools, something which can only end with it exploding?

PS. By assigning a zero-risk weight to Eurozone sovereign’s debts, even though none of these can print euros o their own, much of that capacity to borrow at a reasonable interest rates that could be so helpful with the outbreak of coronavirus has now been consumed?

PS. At the end of the coronavirus/COVID19 day, who is going to pay for the overconsumption of our sovereign borrowing capacity, the older or the younger? History will tell but, meanwhile, I guess we all better take cover under the bliss of ignorance.

PS. If testing for coronavirus/COVID19 is “not needed but nice to do”, how much of our sovereign’s capacity to borrow at reasonable rates should we consume doing testing?

PS. During a dangerous drought, either you have experts distributing water to those who may need it most, or you give everyone a little water for each one to manage their own, but what you don't do is water the grass... e.g. $1.9 trillion Covid-19 relief bill/stimulus plan.

PS. MMT is a great act of economic miracle cure, peddled in the best tradition of medicine shows by those who as long as they can enjoy now what more public debt can bring them, do not care one iota about those who will have to foot the bill in the future, with high interest rates or runaway inflation.

PS. GDP can be obese or muscular. A GDP resulting from excess of carbs, such as QEs and bank regulations that favors what’s perceived or decreed as safe, e.g., sovereigns, residential mortgages and AAA rated; and the lack of proteins, such as that caused by bank regulations that disincentivizes credit to SMEs and entrepreneurs, will, almost by definition, be an obese GDP.

!!!Easy Street!!!

Bank regulators are favoring too much public borrowings

The Public Debt Balloon keeps on inflating and flying Up, Up and Away, ever since the Basel Committee cut its moorings, with their Sovereign 0% risk weight

Here part of my letter that was published November 2004 in the Financial Times:

“We wonder how many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector. In some developing countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits.”

http://teawithft.blogspot.com/2004/11/basel-is-just-mutual-admiration-club.html

PS. For example, in 1988 when regulators assigned it a 0% risk weight, the US debt was $2.6 trillion. At end of 2017 it was US$20.2 trillion, and it is still 0% risk weighted.  If it keeps on being 0% risk weighted, it is doomed to become 100% risky.

A “Public Sector Borrowing Charter”, in order to really mean something significant, needs to be matched by a “Public Sector Lending Charter”

AFRODAD “Aware that African countries face tremendous problems in loan contraction and approval processes and public debt management contributing to unsustainable debt level” is proposing: "The African Borrowing Charter" (The link is to a previous version of the one I read during World Bank and IMF Spring Meetings April 2108)

It is a great initiative and all countries could in fact need something similar. If authorities were just forced to clearly identify in any spending bill, the direct marginal consequences on its public debt levels, that should help to inspire more responsibility. Public borrowings when authorized should come with a clear recognition that a part of their nation’s strategic borrowing capacity is being consumed. As is, it is way too easy for politicians to show great generosity and understanding for today’s needs, by just pushing the repayment of it on future generations.

That said a “Public Sector Borrowing Charter” stands little chance of fulfilling its goals if there’s no parallel “Public Sector Lending Charter” to which all lenders had to sign up to and against which the citizens could hold them accountable.

Imagine if for instance in the case of all those shamefully mortgages to the subprime sector in the US that were originated and packaged into AAA rated securities we were to hold the debtors for signing “odious debt” letting the real culprits, with their “odious credits” off the hook.

US Treasury Secretary Steven T. Mnuchin referring to the humanitarian crisis going on in Venezuela recently stated: “Creditors, whether private or public, that provide new financing to the Maduro regime are lending to a government that lacks legitimacy to borrow in the name of Venezuela.”

Do not tell me that Lloyd Blankfein, and all those in Goldman Sachs, were so naïve so as to believe the Maduro regime would give good use, along the lines of a reasonable Public Sector Borrowing Charter, to the credit they awarded Venezuela just about two years ago... and for which they have yet not apologized to the Venezuelan people.

What if violating a Public Sector Lending Charter could cause the credit to be declared illegitimate, and its collection not enforceable? Would that not be of great help for our children and grandchildren?

PS. I hear that the World Bank and IMF are again to raise the issue of Debt-Sustainability-Analysis. I pray the do not mention "sustainable debt levels" but concentrate on pointing out what consideration all debt should fulfill in order to be sustainable contracted.

Next to credit ratings, or perhaps even more, we need ethic and transparency ratings!

If you know you’re heading straight into debt unsustainability, is it not best to get there as early as possible?

I started decades ago thinking about the theme of (public) debt sustainability, with my homeland Venezuela in mind. Then, when I arrived to the World Bank as an Executive Director in 2002, I widened my perspective to include the public debts of developing countries in general. 

And so I started this my unsustainable debt sustainability blog.

But now, because of my concerns with the distortions in the allocation of credit to the real economy, produced by the risk weighted capital requirements for banks, almost in shock, I find myself thinking on the debt sustainability of developed countries; including that of the US. And of course, that is scary.

Here are some of my uncoordinated recent thoughts (some tweets) on this whole issue.

Statist ultra low risk weights that for the purpose of capital requirements for banks are assigned to the sovereign, guarantees excessive public debt and places a reverse mortgage on its economy which is going to burden future generations.

In 1988, when statist regulators assigned it a 0% risk weight the US debt was $2.6 trillion. At the end of 2017 it was US$20.2 trillion, and still 0% risk weighted. 

If it keeps on being 0% risk weighted, it is doomed to become 100% risky, just like what happened to Greece. But, any increase of that weight will scare markets out of their mind. 

Very high US debt might hinder investments needed to assure its military superiority, and so, at the end of the day, it could come down to the question of: What is more important, having the strongest military forces in the world, or an AAA rating?

What if so many Americans with too much mortgage debt, car debt, student debt, credit card debt and whatever other debt, intuitively picked Trump because he is a guy who has gone through six bankruptcy processes, and has still ended on his feet, and on top?

What if Trump tweets: “They tell me US already has too much debt. With that debt we have written a reverse mortgage on our economy, which will burden too heavily the next generations of Americans. So, OK, I know a bit ‘bout that. I’ve been there, about six times. I'll get down to some good (Great) negotiations... right away!”

Would that be end of the world, or a much needed cleaning?

It would sure be a dangerous mess... but would not the mess be worse if waiting longer for it to mess itself up even more?

Goldman Sachs financing of Venezuela’s corrupt human-rights violating government, shines the light on odious credits

Goldman Sachs has just provided Venezuela’s government with about $865 million in cash, against about $ 2.800 million in bonds paying an interest rate of 12.75%, for a price about 31% of their face value. That, if the bonds were duly repaid, would produce an internal rate of return of around 48%.

Google “Goldman Sachs” and Venezuela, and you will observe the public uproar this operation has caused… almost everywhere.

This is a perfect opportunity to initiate a much-needed debate on what should be considered as odious sovereign debt, so as to therefore have its right of collection entirely or partially void. I have wanted that debate to take place for a very long time.

http://unsustainabledebtsustainability.blogspot.ca/2004/04/odious-credit.html

http://unsustainabledebtsustainability.blogspot.ca/2006/05/debt-sustainability-analysis-sdl.html

http://unsustainabledebtsustainability.blogspot.ca/2015/10/we-must-not-allow-vulture-funds-to.html

Lets face it. Goldman Sachs, to avoid further embarrassment, might sell this credit in the secondary market to a vulture funds that could try to collect 100% of the face value of these bonds plus all its interest.

So let me open this debate by asking:

Lloyd Blankfein, how much do you think someone should rightfully aspire to collect on your 2022 Venezuela bonds?

If a country was a de-facto concentration camp, could its guards be accused of economic crimes against humanity?

I refer to Bello’s “The endgame in Venezuela” The Economist, February 6.

It states: “A mishmash of indiscriminate subsidies, prices and exchange controls, social programs, expropriations and grand larceny by official [and] the collapse in the oil price has exposed the Bolivarian Revolution as a monumental swindle…[and leading to] the supply of medicines fallen to a fifth of their normal level. Many pills are unavailable; patients die as a result…food queues at government stores grow longer by the week…Violent crime is out of control.”

So let me ask, if a country was a de facto concentration camp for many of its citizens who had no opportunities of leaving it, and the guards of the camp had behaved like what has been described above, including the fact that petrol is given away at less that 1/300th of the price of milk; should it not be possible to bring the guards in front of the International Criminal Court, accused of economic crimes against humanity?

And, if knowing the conditions in the concentration camp, financiers had anyhow, because of ultra-high interest rates, given the guards even more resources to waste, and to later be repaid by the prisoners, could not these participations in the bleeding be declared as having no value by that same International Criminal Court?

The world no doubt needs a Sovereign Debt Restructuring Mechanism but, if that is going to help the citizen-prisoners of the world, which it primarily should do, it must begin by making clear the difference between bona-fide normal credits and borrowings and odious credits and borrowings.

Because of economic crimes against humanity, a Nuremberg type of tribunal needs to classify Venezuela’s public debts.

https://foreignpolicy.com/2016/02/05/venezuela-is-about-to-go-bust/
And there is little doubt of that many of those who were financing the Bolivarian Revolution, were totally aware of that the government was committing what could be deemed as economic crimes against humanity. 

And so the question now becomes, do we need a Nuremberg type of court to classify what are normal bona fide debts and what represent an odious participation in the ransacking of a country?

http://unsustainabledebtsustainability.blogspot.com/search?q=Venezuela

http://radicaldelmedio.blogspot.ca/2014/09/dos-irresponsables-bailan-el-tango-del.html

http://radicaldelmedio.blogspot.com/2014/04/acreedor-lease-nuestra-constitucion.html

We must not allow vulture funds to be able to collect rotten odious credits

It would be irresponsible of anyone knowledgable of its economy not to be thinking about the possibility that Venezuela needs to talk with the IMF, to soon begin a process of renegotiating its debt, as well as PDVSA's, which both seem imposible to duly serve in the short term, if the country is not to suffer biafran hunger.

But during the week the Financial Times columnist, Martin Wolf, in an article entitled "Resist Russian blackmail over Ukraine's debt", recalled how the influences of some sovereign creditors could block the constructive actions of the IMF to reach an acceptable solution.

In this regard it may be desirable to first pass before the International Criminal Court in The Hague. I say this because the massive waste of economic resources in a country, for reasons of incompetence, corruption or simply ideological, notoriously verifiable, should qualify as an economic crime against humanity. And the financing of an economic crime against humanity, should not count on any institutional support, like of the IMF type.

Currently there is also much discussion in the world about the need to establish a mechanism for Sovereign Debt Restructuring (SDRM). I agree with this need but, for the results of an SDRM to be acceptable to us citizens, it must:

Remove all incentives that may encourage governments to contract excessive debts.

And make sure it does not provide any benefit, much rather the contrary, to any debt that could be considered as derived from an odious credit.

A loan granted with a lack of transparency, in which an act of corruption might be involved, or that it was originally granted when it was clear that the resulting debt was not sustainable, and therefore it was purely of speculative nature, should not receive the same treatment by the SDRM, as a regular loan to the public sector awarded transparently, and when there were no major doubts about the ability to serve the sovereign credit.

To identify the speculative nature of a loan, one could use for example that the interest rate exceeds 5 percent the rate charged to an AAA rated sovereign.

We must never forget that the best SDRM is the one that reduces the need for it, and thus lowers the risk premiums to be paid to the sovereign.

And we read that investment funds dedicated to capitalize on the opportunities offered by troubled loans, so-called vulture funds, are growing much. These, an even when we like with vultures and buzzards do not like them much, they do in some cases provide important liquidity to the financial and credit markets... and should be duly rewarded for it.

But, since Venezuela already faces major challenges canceling debts duly owed, the last thing we need is that vulture funds also end up collecting rotten credits from us.

Translated from Noticiero Digital

An odious method of contracting sovereign debt in a non-transparent way that needs to be banned

Ricardo Hausmann and Miguel Angel Santos, in their “Should Venezuela default?” refer to a “$5 billion private placement of ten-year bonds with a 6% coupon, it effectively had to give a 40% discount, leaving it with barely $3 billion”

That in cost represents approximately the same as a $3 billion ten-year bond issue with a 13.5% coupon. 

That type of financing of a sovereign should be prohibited for two reasons: 

First, that is, as you can understand, especially when the exact placement price of the issue is rarely reported, a completely non-transparent way of financing. 

Second, in the 2nd alternative, any new government who could obtain access to better credit terms, could much easier offer to repay the $3 billion issue, and thereby free the nation from those usury rates. As is, unless it enters into a default, it has to repay the full usury interests that are hidden away in the repayment of the $ 2bn in principal not received. 

And I would also like to know… who arranged that private placement, and who bought it… so that I could express my contempt for it. Do they not know that Human Right’s Watch has clearly established that in Venezuela human rights are being violated? I mean where does the limit go? Would it be right to buy bonds to finance the building of concentration camps... if the price, the risk premium, is right?

If financiers need credit ratings to base their decisions on, we citizens need governance ratings and ethic ratings to base the permission for our sovereigns to take on debt.

Also… speculative investors should not have the right in any restructuring to have the cake and eat it too, meaning collecting their high-risk premiums and the full principal.

A sovereign debt resolution mechanism should begin by looking at how sovereign credits originate

Joseph Stiglitz in company of many others has recently sent a letter to United Nation’s Secretary General Ban Ki-moon, requesting him to support the implementation of a Convention for the restructuring of sovereign debt.

Of course one cannot but wish for orderly sovereign debt resolution mechanisms, but one needs always to fear the law of unintended consequences… like that the expected benefits of any such mechanism, would just end up being transferred as additional costs to other sovereign borrowers.

Nor would one want lenders who lent to the sovereign at low rates, or acquired sovereign debt when no repayment problems were envisaged, meaning bona fide lenders, to receive the same treatment as those lenders who lending at high speculative rates, perhaps even helped to create the crisis that demands a debt resolution.

Thinking along these lines and reflecting on how often we have seen sovereign debts contracted in an unsustainable ways, perhaps in order to benefit a selected few, it should be clear that any debt resolution mechanism must simultaneously consider the origination of sovereign credits. And, in its simplest form, create a clear distinction between bona fide and speculative sovereign debts.

And, nothing discloses the frontiers between bona fide and speculative debts like the risk premiums charged or implied in the markets. And in this respect, for a starter, I would like to put forward the following definition.

Any sovereign debt that reflects a risk premium that exceeds for instance in 4 percent the lowest interest rate paid for similar debt by other sovereigns, the speculative threshold rate, STR, should be classified as speculative sovereign debt, SSD.

And in the case of a restructuring of a sovereign debt, I propose that any creditor who entered in possession of his credit in conditions that would deem it to be a SSD, should have all interest received in excess of the allowed STR, automatically deducted from the principal.

The basic principle that lies behind this is that if, and only if, a sovereign debt is restructured, a speculative creditor should not have the right to eat the cake and have it too… which translated means should not have the right to obtain the high risk-premiums and 100 percent of the capital too.

And, in presenting this proposal, I am not acting as a creditor, nor as a sovereign borrower, but only as a citizen who wants to avoid governments to mortgage our future on unreasonable terms.

There is currently way too much thinking of what to do if a sovereign credit must be restructured, compared with the thinking of how to avoid unreasonable sovereign debt… or in other words too much talking about odious debts, and too little about odious credit and odious borrowings.

Why for instance is there so much insistence in credit-repayment worthiness ratings, and almost none in ethic ratings which could better show credit-receiving worthiness? 

Should the collection of very high risk premiums on sovereign debt be allowed to go hand in hand with the collection of 100% of the principal?

I have not discussed this with anyone but myself… so I do not hold myself too much to this my own opinion… and so it can change. 

I am and have always been concerned with sovereign over indebtedness, as that affects foremost the citizens of the over-indebted country's own possibilities to take on debt… to realize their own dreams and not the politicians’ dreams... and so I have been toying around with many ideas. Among these:

If a lender gives a sovereign a loan at an interest rate that exceeds for instance 3% what the "safest" sovereign has to pay for a loan, “the overcompensation”, then, if the sovereign runs into trouble, and declares default, should it not immediately be able to apply all overcompensation to the capital owed?

Why? Because frankly I feel that the lender to a sovereign should not be able to eat his cake and have it too. If he charges a sovereign higher interest rates because of its riskiness, well then he should not be able to expect to fully collect 100% of the principal.

Does this make some sense? 

perkurowski@gmail/com

Who did you vote for?

Someone asked me who I would vote for as President of the USA among the current republican and democrat candidate. I replied that as foreigner I have no need to torture myself trying to choose, and so I would not answer it. Nonetheless that got me thinking on that indeed your record as a voter should be made public because, as is, it is too easy for the voter to distance himself from his responsibility of a poor choice.

Coming as I do from a country like Venezuela and where the votes were made public and people were fired from their jobs just because they opposed Hugo Chávez, obviously your vote needs to be classified material, for a period, but, sooner or later, you should have to face your grandchild question "Grandpa, did you really vote this way? What were you thinking of?

PS. Just in case, I never ever voted for Chávez, and that is obviously why I dare to make this suggestion. In fact I have a spotless record. I have never voted for a candidate that was elected president.

Credit should be a one sided affair

There is nothing wrong to take credit whenever someone is buying a lot of your products with his income but, if the other one is also buying from you taking credit then, sooner or later, shit will hit the fan.

Should not lending to a sovereign be the exclusive prerogative of its citizens, of its taxpayers?

Financial conference after financial conference, the closer I am to believing that the financing of a sovereign, should be the exclusive prerogative of its citizens, those to whom a government should be fully and exclusively accountable to. 

Now if some foreigner or wants to finance a citizen or a corporation of a sovereign that is just great but if it goes behind the back of a sovereign’s citizens and gives credit to its government in easier terms than what the citizen thing it merits, that is probably going to end up very bad. 

For instance, what business had Cypriot banks lending to Greece and what business had the Greek government borrowing from Cyprus? Now both Greeks and Cypriots are suffering big time.

In other words, foreign creditors dilute the representation of citizens and taxpayers.

Debts or doubts?

Watch here:

https://www.youtube.com/watch?v=thSTpGnWEAs

You should not give debt relief to "odious" debt

A letter to the Financial Times

Sir Alan Beattie in “Vultures unlikely allies in anti-graft cause” July 18 quotes Stephen Rand of the Jubilee Debt Campaign saying “Debt relief should never be used as a weapon of economic coercion by creditors” as implying that debt relief should be awarded even when governments are still corrupt.

What is this? As a citizen of a country with a government that I consider quite corrupt, I do not like anyone giving it loans, debt relief or anything whatsoever. Frankly, before corruption is ended most of any debt relief given would just end up allowing these countries and governments addicted to debt, to hit the bars again.If the concept of odious debt is applicable in the sense that some debts should not have to be repaid if contracted in an illegitimate way, castigating the creditor, then the same concept should clearly also apply to the granting of any debt relief, punishing the debtor.

Vulture funds

A letter to the Financial Times

Sir, I write to you with respect to Alan Beattie´s “'Vulture fund' in Zambia debt case gain”, February 16. I might not like it too much if a vulture-fund-manager invited any of my daughters out to celebrate a killing in Zambia debt but, having said that, neither am I so sure that the world would be a better place without the vulture funds.

That some can find opportunities in buying uncollectible loans and squeeze fortunes out of them when others have decided to clean up their books, is just part of the circle of life, and part of the same market mechanism which signals how much, or how little, the loans are worth, since the price of a loan indicates the expectations of collecting on the loan and not the expectations of collecting on a “pardoned” loan. Yes, the vulture funds are into an ugly business, cleaning up among corpses, but, by their sheer presence, they might perhaps even help to reduce the number of corpses.

Most, or perhaps all of the scholar papers on the restructuring of sovereign debt, state as the explicit purpose of the whole exercise, that of enabling the countries to regain access to the international capital markets again (something like the torturer waking up his fainted victim) and so, if you really need to pick on one, you might also choose to do so at that moment in the circle when the new born debt-overhang-ridden countries gets thrown out to start defending itself again from the many dogs-of-finance out there.

There is so much written about freeing up the countries in order for them to access the markets while comparatively so little about how they should go about to avoid repeating the same mistakes that, perhaps, I should even frown when it is a regular investment banker who knocks on my door and asks for my daughter. I mean what is some hundred of percents on some few millions when compared to some basis point on a couple of billions.