Skip to comments.Elections in Ireland, Greece Signal Backlash Against Bondholders
Posted on 06/02/2012 9:55:49 PM PDT by Lorianne
Once again, a European government is standing up and declaring that public sector and private-sector bondholders mustn't suffer. But why not? Bondholders suffer all the time when the companies whose debt they purchase fail. Stockholders get wiped out first, and then the bondholders take a hit, with those holding unsecured bonds getting hit first. That's how capitalism and markets work.
(Excerpt) Read more at finance.yahoo.com ...
There's a better way. During the crisis, the Federal Reserve and the Treasury Department guaranteed all sorts of financial instruments: money-market funds, asset-backed debt, the commercial paper market. The FDIC started an initiative to guarantee the debt issued by banks, the Temporary Liquidity Guarantee Program.That is some heavy FDICkery. One house of cards will fall just as calamitously as another.
But these programs differed in some important respects from the Fannie/Freddie and Irish bailouts. The U.S. government didn't offer to guarantee old debt and bonds that had been amassed before the crisis. Rather, it agreed to guarantee new debt and bonds issued after the crisis. And it charged significant fees; it sold insurance rather than quickly assuming responsibility for making debt payments.
So in the TLGP, for example, the FDIC has collected $10.36 billion in fees from banks who issued more than $300 billion in guaranteed debt in 2009 and 2010. There have been no defaults, and the amount of debt insured has fallen to $116 billion. Meanwhile, hundreds of banks did fail, as the FDIC's failed bank list shows. And while their depositors were protected to a degree thanks to deposit insurance, these banks' other financial stakeholders suffered significant losses.
True, but shouldn’t the playah’s fall first?
Until zero gave General Motors to his union buddies for free.
Excellent post and point! Thanks.
In the 1970’s the “eu” was nothing more than a trade compact (like NAFTA) but as the years went by, the compact turned from a trade group into a political group.
To the eu bureaucrats, and former commies in the council, this was a bonanza! It was an opportunity to rule countries via banking laws, sweetheart deals, and regulations of all sorts. Countries that signed up were essentially signing away their sovereign rights to a group of pencil pushers in Brussels.
When the eu tried to pass its last piece of legislation to “seal the deal” on Europe (Lisbon Treaty) several countries balked (France, Denmark, and Ireland). Such countries who tried to buck the Lisbon Treating were essentially bullied into re-voting the issue.
In eu member states, up to 75% of local laws and regulations are now controlled by eu bureaucracies.
There are countries that should never had been permitted into the eu because of their lax economic policies, debt ratios, and social welfare status. Nobody at eu headquarters seemed to be interested in checking their books. Why? Because such bastardized countries served two purposes: (a) to form a super majority of cheap votes to rule the eu without opposition (b) once these countries went belly up, their assets could be sold at a pittance.
Greece is a basket case ruled by an IMF bean counter and two eu officials. Portugal and Spain teeter on the brink. Ireland has gone from Celtic Tiger to kitty kat and Italy about to go bust. In the case of Greece and Italy, their recently elected presidents were thrown out by the eu and replaced with puppets.
Getting into the eu is easy...getting out of the eu is another matter. Once your country is interfaced into the eu’s infrastructure, it very hard to get out. Even if you can, the eu can threaten your country with trade restrictions, denial of foreign credit and admin hassles. Also, with local politicos bribed with cushy jobs and easy money, there’s no incentive to bring up referendums to leave the organization (Briton is a prime example. Their current PM promised a referendum on the Lisbon Treaty and has yet to authorize one. Neither of the major parties seem to be pushing the matter either).
The whole eu experiment is imploding. Fixing Greece is pissing off German taxpayers footing the bill. Immigration of cheap eastern European labor is making people edgy. When the larger basket cases fold, the eu will NOT be able to keep the lid on.
There are those in the eu who still dream of a “united Europe” with a single currency, a single constitution, a single army and a single government. What the Soviets failed to due in the Cold War, the social-welfare technocrats have.
“Getting into the eu is easy...getting out of the eu is another matter. Once your country is interfaced into the eus infrastructure, it very hard to get out.”
Sounds like the BORG.
This guy is a financial pantywaist.
Sure those bondholders get hit when companies fail, but we aren't talking about companies now, are we?
Those companies are gone when they fail.
If one is going to equate sovereign debt with private free enterprise, then the cost of selling such debt will skyrocket.
And much to any Socialist's surprise, you cannot make us invest in your failed ideology without paying us back.
“Once again, a European government is standing up and declaring that public sector and private-sector bondholders mustn’t suffer. But why not?”
It’s simple. They know if he bondholders suffer then the bond market suffers.
And if the bond market suffers, then that means no cheap and easy money to keep overspending.
It’s not just the bond market they are trying to keep from crashing, it’s their whole freaking world, their economic house of cards that keeps them in power.