Tuesday, November 1, 2011

"Why Isn't Anyone Talking About Writing Off 3 Trillion Euros of Bad Debt? "

...Why aren't those who took the risks for their own private gain
being forced to absorb the losses?

...Since nobody knows how much bad debt there actually is in the Eurozone
--care to guess on the market value
of all those underwater mortgages in Spain or the true size of Italy's debts?

...every euro of debt is somebody else's asset.

Wipe out the debt and you wipe out the asset.

That's why there's no willingness to accept the writedown of debt:
somebody somewhere has to suck up 3 trillion euros of loss.

...How much of the eurozone's "growth"
was the result of rampant malinvestment and risky borrowing?

...Printing euros to buy the bad debt is just a shuck-and-jive game
of transferring the losses to unsuspecting holders of euros
or taxpayers.

There's a fundamental truth that everyone has to understand:
what the government spends,
the public will pay for sooner or later,
whether in taxes or inflation or having their debt defaulted on.

Thomas Sargent

...if the European Central Bank prints 3 trillion euros
to bail out the banks and bondholders,
holders of euros will suck up 3 trillion in lost purchasing power,
or split the loss with taxpayers
who have to pony up cash to give the ECB a threadbare sheen of solvency.

There is no free lunch.

...who should suck the losses when 3 trillion euros vanish
in a massive renunciation/writeoff?

...those who took the risk.

...risk has been disconnected from return.

Those who made the risky bets have diverted the risk to others:
taxpayers or the general public who holds currency.

The gains from the bets are private, and theirs to keep,
but all the losses are distributed to the public
via government bailouts or money-printing.

The first shifts the losses to the taxpayer,
and the second shifts the losses
to everyone holding the currency being devalued.

Not only has the risk been palmed off onto unsuspecting chumps,
the returns have been concentrated into the few hands
that control the big bets.

This is ...crony-capitalism:
make the big bets with leverage and borrowed money,
and skim the vast profits.

Then when the bets sour, demand a bailout from the Central State,
the ECB, the Fed, etc.,
which promptly socializes the losses
and distributes them over the entire populace of taxpayers
or holders of currency.

...The EU's politicos are begging to start the printing presses,
as that is the only way they can retain their power
in the face of the debt-serfs' revolt.

...Those who made the bets should rightly lose everything
--yes, be wiped out.

If risk and return are actually causally linked,
then this is the only result of a big bet that sours:
those who placed the bets should be wiped out.

...the most basic fact about all this uncollectible, impaired, bad debt
is that every euro of debt is somebody else's asset.

Wipe out the debt and you wipe out the asset.

There is no way to avoid the 3 trillion in losses.

The only question is who should absorb those losses:
those who stood to gain, or the innocent chumps
whose only crime was being a taxpayer or owner of euros?

If there is any justice (or classical Capitalism) at all in Euroland,
then those who made the bets and invested capital
in the bets to reap a return
are the ones who should absorb the losses.

Life will go on...

...If those who made the bets for their own private gain
aren't forced to absorb the risk,
then we don't live in either capitalism or democracy;
we live in a financial-fascist tyranny.

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