Two stories, confirming the unsustainability of the debt based economic shell game that the globalized banking sector has been advancing the past several years. They both involve about the same amount of money, 15 or 16 billion USD. There are two problems: one is the bank’s wet dream of a massive pile of debt running headlong into the realities of democratic institutions, where the debt is just canceled, en masse:
India cancels small farmers’ debt
The Indian government is to cancel the entire debt of the country’s small farmers in a giant scheme that will cost 600bn rupees ($15bn; £7.6bn).
The move is a centrepiece of India’s latest budget, with the government also increasing education spending by 20% and health funding by 15%.
Of course, debt canceled gets paid by someone, in this case the Indian Govt, but let’s see how long their commitment lasts… And the other problem is the mounting fallout from the sub-prime mess, first reported here in April of last year:
HSBC ‘to unveil $16bn writedown’
The UK’s largest bank HSBC is expected to unveil about $16bn (£8.1bn) of losses for 2007, but will still make an annual profit, reports suggest.
The firm’s annual results out on Monday will show that the bad debt charge is mostly related to the crumbling US housing market and consumer blues.
Reminds me of the famous line: “When you owe the bank ten thousand dollars, you have a problem, when you owe the bank ten million dollars, the bank has a problem…” Recall Hillary’s promise of a moratorium on repossessions, and that’s just the tip of the populist iceberg. Bottom line: that debt is all about to collapse. See this great post from the blog Sudden Debt:
The People’s Bank of the USA
As the credit crisis expands like ripples in a pond, politicians are waking up to the fact that they “must do something”. Homeowners upside-down on their mortgages (i.e. they owe more than their homes are worth) are their current focus. The New York Times reports that as many as 8.8 million homeowners may be under water. As I have said in previous posts, the chief driver of mortgage defaults is exactly such a condition, leading to “jingle mail”.
Panicked bankers are now all over Washington suggesting (“imploring” describes it better) that the federal government should buy and guarantee their risky mortgages, effectively turning Uncle Sam into the Peoples’ Bank of The United States.
Don’t you just love it? When times are good, bankers are all for invisible hands, laissez faire and Friedmanite free markets; but let Mr. Market give them a bit of the stick and they turn bolshier than Rosa and Leon (that’s Luxembourg and Trotsky, for those less versed in communist hagiography).