What’s Wrong with the World Economy
What’s wrong with the world economy? A lot of things, many of which we will discuss. But one of the most appalling, and preventable, are the practices of banks – large, international banks in particular. The good old notion of banks lending money, and making their living by charging interest seems to have long gone by the wayside. In its place the banks have gone mad, and we have let them do it, by their descending into what is essentially gambling. Case in point, as we have mentioned in a previous blog entry, derivatives and credit-default-swaps.
No one says it better than an in an excerpt (below) from a NY Times article. Would banks and bankers be so greedy, so depraved as to make a bet that pays them preposterous profits at the expense of destroying an entire country? It seems so.
The Queen of Amerindia
Banks Bet Greece Defaults on Debt They Helped Hide
By NELSON D. SCHWARTZ and ERIC DASH
Published: February 24, 2010, New York Times
Bets by some of the same banks that helped Greece shroud its mounting debts may actually now be pushing the nation closer to the brink of financial ruin.
Echoing the kind of trades that nearly toppled the American International Group, the increasingly popular insurance against the risk of a Greek default is making it harder for Athens to raise the money it needs to pay its bills, according to traders and money managers.
These contracts, known as credit-default swaps, effectively let banks and hedge funds wager on the financial equivalent of a four-alarm fire: a default by a company or, in the case of Greece, an entire country. If Greece reneges on its debts, traders who own these swaps stand to profit.
“It’s like buying fire insurance on your neighbor’s house — you create an incentive to burn down the house,” said Philip Gisdakis, head of credit strategy at UniCredit in Munich.