Great piece in today’s WSJ. “The history of government loans is really a history of government defaults.” loliiwst (LOL if it weren’t so tragic). Two excerpts:
The only question is why anybody would be surprised by this. The governments of country after country defaulted on their debt in the 1980s, a mere generation ago. In a longer view, Carmen Reinhart and Kenneth Rogoff count 250 defaults on government debt from 1800 to the early 2000s. As Max Winkler wrote in his instructive 1933 book, “Foreign Bonds: An Autopsy”: “The history of government loans is really a history of government defaults.”
As European banks and other investors today gaze sadly on government promises to pay, it is essential to ask: Who promotes loans to governments?
The answer is that governments promote loans to governments. They have an obvious self-interest in promoting loans to themselves and to other governments they wish to help or influence. Banks are extremely vulnerable to pressure from governments—the more regulated they are, the more vulnerable. Employees of government bureaucracies have an incentive to encourage loans to their political employers—an inherent conflict of interest.
In addition to promoting their own debt to all possible buyers at all times, governments promoted the World War I loans to the Allies; loans to Germany in the 1920s; loans to developing countries in the 1970s, which defaulted in the 1980s; loans to Fannie Mae and Freddie Mac until they failed; and loans to fellow governments in the European Union up to today.
Because governments always promote government debt and can induce or pressure banks into buying it, future sovereign debt crises are inevitable.