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Without bankruptcy protections, what prevents companies from lending out an unlimited sum of money? Countries don't die. You can't send them to debtors' prison.
by ellius 9y ago
Without bankruptcy protections, what prevents companies from lending out an unlimited sum of money? Countries don't die. You can't send them to debtors' prison. A lender could effectively sell a corrupt or stupid government unsustainable amounts of debt and then effectively put a lien on the country in perpetuity to get its money back. That hardly seems just towards the citizens, who committed no crime other than electing stupid leaders, many of whom might have been elected before they were even born.
- Laforet 9y agoIndeed. In 1825, France demanded a sum of 150 million francs to be paid by Haiti for the loss of French property during the war two decades ago and threatened miliatry invasion in the event of non-payment. The sum was later reduced to 90 million francs and paid in installments until 1947, some 120 years later. Many believed this debt to be the thing that crushed any prospect of development in Haiti's early history as an independent country.
- tanderson92 9y agoWell, credit ratings prevent them.
- tanderson92 9y agoThis is objectively true, so the downvotes are a bit baffling. Credit ratings are directly related to the rate premium bond holders demand for the extra credit risk. It is simply a fact that if the credit ratings are lowered to a sufficient extent, the rate that investors demand for the borrowing will make it no longer feasible.
- anigbrowl 9y agoAbout 10% of HN downvotes I see are applied on ideological rather than rational or grounds (leaving out those for rudeness or other inappropriate behavior). I take an irrational downvote as a small victory, albeit after making sure that it wasn't just for being a smartass or missing the point.
- gertef 9y agoSpot on. You reinvented the World Bank https://www.one.org/international/issues/debt-cancellation/ https://www.one.org/international/issues/debt-cancellation/ http://www.huffingtonpost.com/marcelo-giugale/does-debt-forgiveness-wor_b_5318764.html http://www.huffingtonpost.com/marcelo-giugale/does-debt-forg...
- astronautjones 9y agoYES, thank you
- fulafel 9y agoSovereign states eponymously don't need bankruptcy protection, as banks cannot collect from them. Countries pay back loans because they like to keep a good reputation for future loans, but this does not work in a situation where there is nothing to lose since you can't service loans anyway. (Of course banks can enlist other states to do strong-arming: See eg Greece who were pressured to accept a deal worse than default to benefit foreign EU banks)
- xamolxix 9y ago> See eg Greece who were pressured to accept a deal worse than default to benefit foreign EU banks how are they being pressured?
- jacobush 9y agoIf they don't agree, they will get booted from the Euro currency cooperation. Then they can't issue bonds in Euro. Would have to use their own currency - and that currency would not be in high demand. What would you use it for? Buy olives? Nah, export companies would rather be paid in Euros, dollars or just about anything else...
- xamolxix 9y agoWell, maybe but what is the non-pressure course that the EU should take here? Isn't that what they (Greece) signed up for when they joined the euro?
- candiodari 9y agoJust answering from an economic perspective: > What would you use it for? Buy olives? No, of course not. What government sells olives ? You'd use it to pay Greek taxes. Those you'll pay anytime you want to buy anything from Greece. So it doesn't matter if export companies get paid in Euros, Dollars, or anything else. They'd still owe taxes in (presumably) Drachma and that would create a market for Drachmas.
- 9y ago