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View Diary: IMF & Iceland: If this isn't true, I want to know, because if it IS true I want to bathe in it! (147 comments)

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  •  yes ... but (4+ / 0-)
    Recommended by:
    lonespark, Fast Pete, Seneca Doane, elwior

    Of course the way to solve the financial mess is to make bondholders pay a large part of the cost. But let's look at what that really means:

    1. It means wiping out debt (what is owed to bondholders) not increasing it (current plan in US). This makes sense because it is impossible to cure a problem of too much debt with more debt.

    2. Screwing the bondholders seems like a good idea ... until you realize who the bondholders are. Hint they are not all the 1%. A lot of the bondholders are pension funds (the biggest pool of cash around). So if the bondholders get screwed a lot of pension funds are going to be very underfunded needing a lot more money coming in (higher contribution rates) or lower benefits to be paid out.

    3. Sometimes (like in Spain) the bondholders (technically pref share holders in Spain) are actually normal citizens. In Spain screwing the bondholders would create a social revolution.

    Those who make peaceful revolution impossible will make violent revolution inevitable. - JFK

    by taonow on Thu Aug 23, 2012 at 06:03:40 AM PDT

    •  It was the same with the Icesave crisis. (10+ / 0-)

      Icesave was mainly used by individual retirement accounts and small municipality investment funds.  Of course, the British and Dutch governments reimbursed their citizens then demanded that Iceland reimburse them, so ultimately it came down to a squabble between which government was going to get stuck with the bill (it's still in court)

    •  What Exactly is "Screwing the Bondholders?" (6+ / 0-)

      If you loan money to a business, and that business fails, no one is screwing you when you don't get all of the money back that you loaned the business.  

      This is simply how the great, great, majority of business loans work.  This is why investors are paid more in interest when they lend to CitiBank via CitiBank bonds than they get for lending to the U.S. government.  Its called the default risk, which is the risk the business will fail and the investor may not get all of the loan repaid.  

      If investors wanted a risk free investment, they could have invested in U.S. securities or even put their money in a FDIC insured CitiBank account.

      They didn't do that.  That was their choice, to forgo a safer investment in exchange for a higher interest rate.    

      So, under our wonderful capitalist economic system, my fucking tax dollars should not go to bondholders who invested in a failed private business when that business fails.  You want to change the system?  Fine.  But don't tell me taxpayers should be screwed over so investors don't take the hit the investors willing signed up for, and were paid higher interest rates to take.  They gambled and they lost, end of story.    

       

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