Brian,
Develop your thesis as much as you like but you're regurgitating the fiscal chimera that got us here in the first place. Leverage that results in inflated value creates real debt fictionally secured on phantom assets . Unfortunately this particular free-market mechanism flourishes because the more inflated the value the better the return. Nothing to do with real world risks or expectations but a simple bet on a profitable outcome - using somebody else's money.
It is as if I borrowed a tenner from you to place a bet at even and agreed to pay you a pound back every month for a year - I win my bet, pocket the money and borrow another tenner on the same terms from you and now from all your mates as well while placing bets at even (lowish risk) all over the place - still pocketing the money from my winnings. Because I'm making money and the odds are low risk you all join in and there is so much money on the even bets that the odds shorten. To keep my returns up I now make riskier and larger bets - to reduce my exposure I lay-off some of my bet back to you, agreeing to share my winnings. We continue to make riskier bets and lay-off more of them - in fact we package our bets into financial betting instruments - these take on a life of their own and are are bought and sold before the bet even takes place. We wanted a high return on our money but Sillybank just wants 1 to 5 as it has billions to invest - so it can pay us more than the bet cost us and still get its desired return. This makes sense to us so we forget about what we are betting on and just create financial betting instruments and do very nicely thank you. Because the bets are riskier and the returns not so good one day we can't sell our betting instrument - so we buy it back at the inflated price we wanted just to keep the market up. We also decide, as cover, to bet that, as we can't sell this one, the other bets will lose. So now we're betting against ourselves. We convince you to buy a bet against your bet on the basis that you can't then lose. We package the bets against the bets into yet another financial betting instrument and then slice and dice them into bets and bet/bets and sell those too - the logic is so smart that we even buy them ourselves even though we don't know who made the original bet. So does every other punter. So now we've taken your original tenner and leveraged it into unknown territory - all on borrowed money. Until there are so many bets and counter bets that the value in the original bet bears no relation to the present price. Then one day you ask for your tenner back because you've bet all your liquid money. I don't have any cash as I spent it all - so I try to sell - nobody wants to buy - I try to borrow the money - nobody will lend it to me - I cry to the government for a loan - they give me enough money - I give you your tenner back - we all pretend it didn't happen. So how much is a market now costing the world's taxpayers trillions to support really worth? Your answer seems to be "who cares" so long as nobody asks. Otherwise known as "Confidence in the Market".
There are no banks that got it broadly right but some that got it less broadly wrong. They'd be toast if their counter-parties hadn't been bailed out. This isn't about defaults by customers its about defaults by banks. Its a cluster-fuck.
A bankrupt country is one that can't afford to employ, educate or sustain its citizens. Can't afford to invest in infrastructure or support its services and industry.
Develop your thesis as much as you like but you're regurgitating the fiscal chimera that got us here in the first place. Leverage that results in inflated value creates real debt fictionally secured on phantom assets . Unfortunately this particular free-market mechanism flourishes because the more inflated the value the better the return. Nothing to do with real world risks or expectations but a simple bet on a profitable outcome - using somebody else's money.
It is as if I borrowed a tenner from you to place a bet at even and agreed to pay you a pound back every month for a year - I win my bet, pocket the money and borrow another tenner on the same terms from you and now from all your mates as well while placing bets at even (lowish risk) all over the place - still pocketing the money from my winnings. Because I'm making money and the odds are low risk you all join in and there is so much money on the even bets that the odds shorten. To keep my returns up I now make riskier and larger bets - to reduce my exposure I lay-off some of my bet back to you, agreeing to share my winnings. We continue to make riskier bets and lay-off more of them - in fact we package our bets into financial betting instruments - these take on a life of their own and are are bought and sold before the bet even takes place. We wanted a high return on our money but Sillybank just wants 1 to 5 as it has billions to invest - so it can pay us more than the bet cost us and still get its desired return. This makes sense to us so we forget about what we are betting on and just create financial betting instruments and do very nicely thank you. Because the bets are riskier and the returns not so good one day we can't sell our betting instrument - so we buy it back at the inflated price we wanted just to keep the market up. We also decide, as cover, to bet that, as we can't sell this one, the other bets will lose. So now we're betting against ourselves. We convince you to buy a bet against your bet on the basis that you can't then lose. We package the bets against the bets into yet another financial betting instrument and then slice and dice them into bets and bet/bets and sell those too - the logic is so smart that we even buy them ourselves even though we don't know who made the original bet. So does every other punter. So now we've taken your original tenner and leveraged it into unknown territory - all on borrowed money. Until there are so many bets and counter bets that the value in the original bet bears no relation to the present price. Then one day you ask for your tenner back because you've bet all your liquid money. I don't have any cash as I spent it all - so I try to sell - nobody wants to buy - I try to borrow the money - nobody will lend it to me - I cry to the government for a loan - they give me enough money - I give you your tenner back - we all pretend it didn't happen. So how much is a market now costing the world's taxpayers trillions to support really worth? Your answer seems to be "who cares" so long as nobody asks. Otherwise known as "Confidence in the Market".
There are no banks that got it broadly right but some that got it less broadly wrong. They'd be toast if their counter-parties hadn't been bailed out. This isn't about defaults by customers its about defaults by banks. Its a cluster-fuck.
A bankrupt country is one that can't afford to employ, educate or sustain its citizens. Can't afford to invest in infrastructure or support its services and industry.
Let's look at a recent example in the US where the self-regulating (more like self-deluding), free-market economic model rules the day. BMW are going to open a plant there with auto-workers queuing up to take jobs at $15 an hour while in Germany the same auto-workers are paid $30 an hour - never mind comparable health care or vacation time - the present German economy works while the present US economy doesn't. So which model would you choose? Given your present stance it would appear to be the US model. Back in 1816 Thomas Jefferson remarked that "I hope we shall . . . crush in its birth the aristocracy of moneyed corporations which dare already to challenge our government to a trial by strength, and bid defiance to the laws of our country." To that add the Banks. He seems to have hoped in vain.
Some how or other you seem to regard the Mediterranean countries as more "corrupt" - than what? Leave Greece out of the picture - too easy. Italy functions despite the government - always has. Spain's banks aren't in as much trouble as the UK's and Portugal's economy is too small to really matter - unless you're a Port drinker. Bit hard to maintain a National high ground while submerged in debt - remember we globalised the system - they did it to become like us - and now they're in deep shit.
Either you accept that Germany will be the economic power house of Europe or take a hike. If you apply the same economic rules to National finance as you do to corporate finance - the guy with the money sets the rules. Get off the corporation tax hobby horse - governments need revenue - especially if you want them to pay off bank debt. You're not going to convince many governments (other than possibly one in the USA) to reduce taxation in the foreseeable future. I suspect that Dublin will increase its corporation tax sooner or later under the next government - when it can blame the last one for it. Ireland did everything it was told and more to become the lauded Celtic Tiger - the canon of free-market economic growth - and look where it got it. A nation in an aspic of debt.
So while y'all sit besuited around the lunch table spouting big thoughts, over your Windsor soup, about the economy it might help to bear in mind that, based upon the prevailing model's principles, there isn't one - only the shadow. And for fuck-sake don't listen to bankers or economists. There is worse to come.
Best,
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