[In the late 70's American banks started lending massively governments of Latin American countries]
"When the loans to Latin American governments went bad, Citi and other banks were rescued via a program that was billed as aid to troubled debtor nations but was in fact largely aimed at helping US and European banks. In that sense the program for Latin America in the 1980s bore a strong family resemblance to what is happening to Europe’s peripheral economies now. Large official loans were provided to debtor nations, not to help them recover economically, but to help them repay their private-sector creditors. In effect, it looked like a country bailout, but it was really an indirect bank bailout. And the banks did indeed weather the storm. But the loans came with a price, namely harsh austerity programs imposed on debtor nations—and in Latin America, the price of this austerity was a lost decade of falling incomes and minimal growth".
by Paul Krugman (From the review of the book Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present, by Jeff Madrick published in NY Books)
Smart, huh? Decades of austerity for the people of a nation to save foreign banks from the outcome of their own greediness and recklessness.
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partly true. the banks adjust their policies to the political decisions. for instance, the housing market bubble was created when the US government decided that all US citizens should become home owners, irrespective of their financial status. the banks collaborated but needed to hedge their risks through the CDS practises. what followed is known. the root of the problem is the lack of political leadership in a global scale. to that extent what Krugman says is correct. meaning that the saving of the banks actually spirals the crisis, which goes back to what i said about political leadership (rather the lack of it). correcting a mistake with a bigger mistake is not really smart. it gets even worse, when (as in the US) you selectively save the banks that where the most reckless of all. this is based on the false dilemma, that without saving the banks, their void will affect liquidity. but this is a false pretext, since the more prudent banks (those that avoided the toxic bonds or products) will fill up this void. και για να τα πουμε ελληνιστι, ςε αρε φθψκεδ (we are fucked). kala na peraseis
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