Monday, July 6, 2015

Thoughts on the Greek Crisis and The Proliferation of Global Debt


If you are wondering why financial institutions continue to give money to countries, companies and individuals who have little or any ability to pay back those loans, remember that those institutions receive COMMISSIONS from making loans, and even bigger commissions from packaging those loans into financial products like derivatives. It is from these commissions that huge profits are made for the institutions, and huge bonuses for their managers and executives
This gives financial institutions a built in incentive to cater to the appetite for funding that insolvent, or near insolvent entities, may have, whether it be a family who wants to purchase a home they can't afford, or a country desperate to fund pensions, or salaries of essential government workers when they have run out of cash.
It would be instructive to track all the commissions made by loans to the Greek government right up to the current crisis. I would suspect they add up to a very large amount of money
In short, calls for fiscal discipline on the part of Greece are a bit hypocritical coming from those who have profited handsomely from those who have extended loans to the Greek government, and Greek banks for the last ten years.
It would be very interesting to see whether this crisis would have taken a different form if commissions were sharply reduced on loans and financial products

But hey, what do I know. I am just a history professor.

4 comments:

kass said...

A big player who is very much part of the Greek downfall is Goldman Sachs, who helped the Greek government "cook the books" to get it into the EU. In exchange, Goldman came up with draconian loans that benefitted them enormously... sharks. It was downhill from there when EU banks piled on with the equivalent of subprime loans, knowing they were unpayable but going forward anyway.

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