The Argentina Default
By Michael Tivana - back to Tribal Messenger
Spain is probably the most affected by
the Argentinian default on its IMF loans. Spain is a leading investor there in
telecommunications, banking and oil. Other countries and their banks such as
the US and Chase Manhattan and FleetBoston Corp are also carrying debt in Argentina. The point is is that
these banks invest whose money? The peoples money. This
is risky business but thus far the IMF has been able to fend off all crisis but Russia and keep on loaning money at an
incredible rate. It is typical when a country gets in this deep, like Jamaica, Thailand and Mexico that 50% of the country’s revenues
goes to paying off the loan/s.
In the US until
the 80’s, banks were never allowed
to engage in business outside of banking and not allowed to run businesses like
electric or construction companies because when they loose and go bankrupt it
destabilizes the personal economy of thousands of households. They were
not allowed to bank outside of their state much less all around the
world, because of the risk that it gives the institutions. The Banks are made
up of people that save their money with them. They do not thinkof
themselves as investors but are made so at the whims of the bankers’ decisions.
When Reagan
changed the laws for the banking industry in the US it spelled
disaster for the saving public. A US taxpayer debt that accounts for $32 billion a year of our national
budget. In 1983 he signed a bill that gave the banks permission to go into
business outside of their own interests of saving and conservatively investing
that money. The de-regulation led to the gutting of the S&L industry in our
country. How many are left? and now banks and S&L's
can
engage in other types of business outside of banking worldwide.
ANother point is
the consolidation of our financial institution. The
Resolution Trust Corporation resolved and liquidated 1,617 banks and 1,295
thrifts between 1980 and 1994. In 1980 there were 14,434 banks in the US (not including the S&L's) --- by 1992 there were 11,466 ---- by 2000 there
were 8,315 ---- and Bush hopes to continue the consolidation of our financial
institutions down to 2,000. This winnowing down of our banking industry makes
it easier to control by the feds and more susceptible to fitting the definition
of fascism (strict government regulatory control over finances), we shall see.
The control
over the money is very important because money is what runs this system. There
are other ways to have commerce in a system but people don't have a broad
enough world view to perceive any other way than the money way. For the time
being we are stuck with the money system and moreover the new monetary system
called globalization. Eventually as the world goes we
will all go. Right now the end result in globalization is increased poverty.
Watch the
IMF calms fears and run damage control by doing the following:
- A re-structuring of the debt to
establish the image of strong official support to avoid the contagion of
uncertainty that can lead to widespread panic
- Some of the current debtors
will take a loss, the loans will be devalued, but not so much as to make
investors panic – a write-down in loan values to say 60% of value is
feasible with the IMF guaranteeing their value at that level. Those that
sell are cutting their losses, those that stay regain their losses and may
make a profit and those that buy are getting a great deal.
- Boost confidence by lending
more money
- Reduce the risk on the new
loans by demanding that more of the resources of the country go to paying
off the loans – it will be over 50% of revenues
- This devalued debt will be sold
at bargain basement prices to lure in new investors –
For now we
must monitor the dissolution of the Argentinian
economy and follow the banking and corporate investment trails to see where
they lead and what this means to us here in Seattle and the US. Is Argentina going to be the proverbial out with
the old and in with the new? Lets watch and see if
anyone comes up with some bright ideas and not more of the old.
What are
your thoughts on the new?