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A proposal for a partial unified theory of Trump scandals.

There has been considerable speculation about whether Donald Trump’s $916 million loss from 1995 may be something other than unadulterated “economic genius” (as Rudolf Giuliani called it, because that’s what you usually call it when someone manages to lose nearly a billion dollars in a single year). In particular, some commentators have suggested that these were not real losses, but an example of  “debt parking”: Instead of allowing the losses in his bankruptcy to be written off (in which case, the debt write-down would count as income, cancelling the tax benefit of the loss) it got transferred to an offshore entity controlled by Trump

But here’s another possibility: What if the offshore entity is not controlled by Trump, but by Vladimir Putin and/or the Russian state. Since he hasn’t gone through personal bankruptcy, the debt remains valid, and the creditor can choose to demand repayment at any time. They would essentially own him. That would explain a lot.

War gilt

It has often been remarked that, whereas the English word “debt” has a long history as primarily a financial term, with only optional moralistic overtones, in German “debt” and “guilt” and “sin” are represented by the single word “Schuld”, deriving from the Indo-European root skel, meaning “crime”. This surely reflects the exceptional German inclination — conspicuous in the current tussle over Greek loans — to view indebtedness as a moral failing, and moral failings need to be chastised, lest the sinner slide back into his old ways. At least, that’s the principle for other people’s indebtedness.

Their own debts are more nuanced. Particularly war debts, as this article from Spiegel makes clear. In 1942 Greece’s national bank cancelled Germany’s debt of 476 million Reichsmarks, out of pure gratitude for Germany’s contributions toward a unified Europe, into which Greece had just been integrated. In retrospect this deal — the debt would be worth something between 8 billion and 80 billion Euros today — seemed overly generous to some, given complaints about the quality of the services provided to the Greek public by the Wehrmacht. The 1953 London Agreement on German External Debt provided for the resolution of these customer-service complaints to be postponed until after a formal WWII peace treaty which, I was surprised to learn, has never been concluded.

But obviously the Germans don’t believe that a people should be forced to suffer economic devastation because of financial obligations undertaken by an irresponsible government that the people have since repudiated.

The revolution will not be televised devouring its own children


A perennial topic of public discussion ever since my childhood has been the sellout our not of the formerly revolutionary former youth of the Baby Boom. The false premise here is that they were the sellers rather than the buyers. While there are great acts of civil courage and genius (political, scientific, and artistic) revealed individually in that generation, as in every generation, when seen as a collective these people’s actions are indistinguishable from the script one would have expected if they had been forged into a steel-sinewed generational army equipped to plunder the past and the future. First, they sucked resources out of their parents while devising a cult of youth that absolved them of any need to respond with ordinary human gratitude. Then they determined to ensure that their own children would never do the same to them, by stitching up the tax system and the pensions to ensure that public resources would be bled dry by the time their successors tried to make a claim on them. Continue reading “The revolution will not be televised devouring its own children”

Credit and Credibility

Are banks crazy or a cartel?


When a government (let us say, in Athens) could possibly renege on promises made to banks who loaned them money or bought their bonds, which that government is unable to fulfill without draconian cuts to public services, all right-thinking people attack the feckless politicians and threaten a collapse of confidence and the world economy. This is a DEFAULT! Other governments and the IMF might jump in to pour money into the state coffers, on the condition that they flow out the other end into the investors’ pockets.

But when a government (could be in Athens, or in London, or for that matter Madison, Wisconsin) has made promises of pensions to government employees, but has failed to fund them adequately, it is short-sighted and greedy for these civil servants to insist on these promises being honoured.

Why is a default such a terrible thing? Because, they say, if the country defaults on its debts it will be shut out of the credit markets. Hmmm. Let’s suppose it is true. Why? Suppose you own a bank, and your thinking of lending to one of two countries, let’s call one of them Piigsia and the other Sameria. Both are heavily indebted. Piigsia introduces crushing austerity measures, while Sameria repudiates its sovereign debt. Which of those countries would you rather loan your bank’s money to? The one that’s shown a great willingness to pay off its debts but is financially crushed, or the one who may be more likely to try to weasel out of its debts, but is eminently capable of paying. Solvency is not merely (or even primarily) a state of mind. I mean, what good is it to have the current government express a willingness to pay off its debts, knowing that it’s likely to be punished by voters for these “good” intentions? Maybe they just don’t want to be serial defaulters, so having avoided defaulting this time will encourage them to default on the next batch of loans.

As for Sameria, it sucks for the other banks that have lost their money, but why should I give up a chance to make a good profit for the sake of punishing Sameria for hosing my competitors? In fact, in a competitive market, why shouldn’t I be happy that my competitors have made a loss, and just try to get better conditions for my loan?

Continue reading “Credit and Credibility”