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    first world nation seeks third world status, but too stupid to figure out this whole slum thing..., 2009-03-26 13:19:30 | Main | bank size..., 2009-03-29 12:56:47

    more rioting, plz:

    Simon Johnson reminisces about his days running the IMF:

    inevitably, emerging-market oligarchs get carried away; they waste money and build massive business empires on a mountain of debt. Local banks, sometimes pressured by the government, become too willing to extend credit to the elite and to those who depend on them. Overborrowing always ends badly ...

    The downward spiral that follows is remarkably steep. Enormous companies teeter on the brink of default, and the local banks that have lent to them collapse. Yesterday’s “public-private partnerships” are relabeled “crony capitalism.” With credit unavailable, economic paralysis ensues, and conditions just get worse and worse. The government is forced to draw down its foreign-currency reserves to pay for imports, service debt, and cover private losses. But these reserves will eventually run out. If the country cannot right itself before that happens, it will default on its sovereign debt and become an economic pariah. The government, in its race to stop the bleeding, will typically need to wipe out some of the national champions—now hemorrhaging cash—and usually restructure a banking system that’s gone badly out of balance. It will, in other words, need to squeeze at least some of its oligarchs.

    Squeezing the oligarchs is seldom the strategy of choice among emerging-market governments. Quite the contrary: at the outset of the crisis, the oligarchs are usually among the first to get extra help from the government ... a classic Kremlin bailout technique [is] the assumption of private debt obligations by the government. Under duress, generosity toward old friends takes many innovative forms. Meanwhile, needing to squeeze someone, most emerging-market governments look first to ordinary working folk—at least until the riots grow too large.

    Which is just another way of saying what Jonathan Schwartz joked about yesterday, referencing a fine old post describing pretty much what it is the former head of the IMF is telling you is happening, to you, right now, that he used to watch happen, to others, all the time.


:: posted by buermann @ 2009-03-26 19:45:15 CST | link





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