This time is different

What happened?
Having survived the dot.com collapse, well educated people were on the hunt for new revenues.
Astrophysicists, mathematicians, and other geeks started drawing profits from market volatility with the help of machines crunching their elaborate quant models.
Icelandic fisherman buying assets abroad with borrowed foreign money.
Irish banksters inflating their national real estate markets with destructive tax competition and borrowed money from abroad.
Greeks cheating their way into the EU in order to borrow like solvent citizens and nordic tax payers.
Investors, mainly the Landesbanks from Germany, hurled in to take the opposite side of the bet that none of these borrowers will ever default.
And the quants who produced such toxic crap ran to mom and asked her for insurance on assets they did not even own!
Glorious days, those were.

Debt equals Power
Here is how you come to power: lure others to swallow your obligations by paying them a lump sums or let your platinum credit card make them heroes for a day. When your ponzi scheme of broken promises and wrecked obligations eventually collapses you just go on to pursue your “interest”.
Is that double meaning of interest in policy and finance intriguing, isn’t it?
All of them had financial advisors from the US. None of them saw it coming since it was different this time. And — none of them played with its own money.
They were all on a frenzy, Kostolany’s warning largely unheard: “NEVER gamble with borrowed money.” But those were the old, the non-quant days.

And BOOM-erang, all that goes up comes down again.
Investors fled the country taking away that capital from banks which set their balance sheets on fire. The recipe for that were shrinking deposits and tumbling loans. But to the stupid on main street it has always been a “liquidity” rather than a “solvency” problem.
While the banks were tanking, creditors appeared in order to claw back their money.
This time it should be different.
No bank should be allowed to default on its external debt since banks and governments has had the tendency to waive on their obligations to foreigners for centuries.
And most of them got it the right way.

If you lend the bank 80 billion € you own the bank — and the country of its origin
First act: national governments were forced to underwrite guarantees, effectively turning external debt into internal debt. The country’s indebted and debtfree of today and tomorrow became slaves of past profits.
Second act: when governments in many European countries figured out that a financial crises of some individuals had turned into a grinding governmental budget crisis, they put down their national egos, at least for the moment of neck-breaking debts double ot triple their GDP.
Those business-friendly neo-cons, who had previously competed for funds and taxes with and from other European countries, suddenly turned into tamed socialists.
Europe swung its magic wand. Europe created the European Stability Mechanism over night, subject to no control and no liability.
And the ECB, advised by exactly the same guys who incurred this financial mess, did its magic by swapping the obligations of lavish, irresponsible, or selfish governments into a claim of all European citizens.
Since Japan’s burst Heisei bubble we gotten accustomed to the fact that such skyrocketing debt will probably never be repaid. Hence, the claim of all European citizens will morph into a claim of their tax authorities.
Meanwhile, Irish banksters joked about raping the German taxpayers behind the curtain of “solidarity”. Before that curtain, a greek mobscene appeared to blame others than themselves for their misery. They did not even refrain from killing a pregnant bank employee.

Lessons learned: This time is – really – different
Europe avoided the external default of some of its members.
Great,will they do that again?
Some financial institutions moved from the center of financial turmoil to the sunny side. Much stronger than before, so strong that they can resume their game of leveraged gambling.
Greek bonds drew in much attention, Portugal and Ireland left the European protection measures.
Thousands of Europeans and Americans still hang on that cliff they were pushed over amidst the trembling financial markets. Robbed of their future by hubris and incompetency, sentenced to tax prison in order to paydown someody else’s debt plus interest, they will live in an era of “great moderation”. That era holds gloomy employment prospects, staggering income and inflating tax bills. Razor-thin interest paid on savings will limit the funding of the ordinary people’s dreams, a decent home. Property will then not only be a hard buy, but also a hard sell as long as its seller sits on debt inflated during the housing bubble.

Generation X
And the game starts over again: decades ago the “carry trade” (borrow low) from Japan to “more profitable regions” (lend high) were the boon for the financial folly that blew up in 2008.
Almost zero to reportedly negative interest rates, orchestrated by the ECB as a preposterous skit of Silvio Gesell’s demurage, fuel now a new carry trade from European savers to more profitable regions that will be in financial turmoil in 7 years from now. Just look at Africa making the headlines in financial communities.
Europeans should consider to invite Africa into the European Union. Primarily out of solidarity and to repay their historical guilt, secondary to prevent African governments to default on their external obligations.
And when the investors have the world plus 5 percent they’ll lend the moon.

Do we ever learn anything from history?
Nassim Taleb denies that.
And he’s right. At the beginning of the 20th century, the Austrian economist Hilferding analyzed Europe’s Imperialist era.
In today’s words his idea is that: Financial institutions first brace themselves as the driver of industrial growth. Capital exports overturn goods exports, what happend in the 1970’s. This hunger for credit reinforces the financier’s place at the core of each economic activity. While competitors defeat other competitors and inevitably create monopolies, financial institutions achieve the status of “systemic relevance”. From thereon they can cash in on that “systemic” gift by investing recklessly in any asset on offer — and get bailed out on their behest.
Governments try to sell that later as a hickup of the capitalist regime and an undeniable commonplace in economic cycles just to get on with the gam(bl)e.
The rule stays the same: don’t you intervene in my business as long as the music plays but bail me out when the music stopped and no place got left.
Did not get that?
The rule is that there are no rules for some.
Hilferding coined this liason of economic and political interest – read: people’s confinment to debt – as “Staatsmonopolkapitalismus” (monopolistic state capitalism). If in doubt, just see above.

Insanity means repeating the same game, over and over again, but expecting different results
It won’t stop until governments and banks understand the true meaning of externalities that even the man on main street have understood.

Borrowing means selling a part of one’s time out of one’s reach for a better today the same one cannot afford. And payback day comes. Ordinary people get jailed for failing on meeting their obigations.

Nobody on wall street or in city hall got jailed for selling the future of their citizens.
But governments and banks still think they can make political or financial profits on the medieval morale that somebody else will repay their obligations, either the unborn, the young, or some foreigner.
In medieval times the heirs of ceased borrowsers could be made slaves to the creditor. Then and now, nobody assumed this to be immorale.
That way, governments are part of equation themselves and become a systemic risk to their own people.
Too big to fail, too big to jail.

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