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I see no case where Icelandic taxpayers should have to pay anything.

I couldn't agree more: the Icesave debt is pretty "odious" debt.

But whether debt is rightly due or not - and Hudson refers to Latvia's troubles as well - why cannot a sovereign state issue Units of National Equity carrying a dividend, rather than debt?

Other than the fact that this debt is the convention, of course.

I'd be interested on your thoughts in respect of that point, since we have recently seen both Nicholas Taleb (in the FT) and Willem Buiter (in his FT blog) recognising the point that since global debt is unsustainable, it is in a new approach to equity that the solution to the Credit Crunch must lie.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Aug 17th, 2009 at 06:22:59 AM EST
[ Parent ]
why cannot a sovereign state issue Units of National Equity carrying a dividend, rather than debt?

That concedes the point - the crucial point - debt of a private company is backed by the inhabitants of the country where that company is physically located.

There is a (weak) case to be made the inhabitants of the country are obligated for the debt their government contracted.  There is no case for having them being obligated for a private company.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Mon Aug 17th, 2009 at 11:28:19 AM EST
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Not at all.

I agree totally that socialisation of private losses is unacceptable, but unfortunately we are seeing government after government doing just that.

I propose that sovereign governments should be able to create unconventional undated Equity obligations, as well as conventional dated Debt.

This would change the dynamics of international finance in very interesting ways, with great potential, I believe.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Aug 17th, 2009 at 12:04:14 PM EST
[ Parent ]
I would 'go' with your scheme ONCE the perps had everything, including their underwear, confiscated as collateral/backing for the scheme AND it was clear a precedent was not being established.

Difference in orientation.

I'm immediately 'move to' (Read: obsess about) the Communication aspects of a situation/problem.  Your experience and expertise is different thus, your concerns are different.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Mon Aug 17th, 2009 at 12:54:15 PM EST
[ Parent ]
Why is socialization of private losses so unacceptable?  Isn't it more a question of whose private losses are being born by society and whose are not?  Socialization as such provides a means for more people to take income-increasing risks, which, if not abused, can be the difference between prosperity and poverty.
by santiago on Mon Aug 17th, 2009 at 03:29:52 PM EST
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Because it was wholly unnecessary. Management should have been dismissed, shareholders wiped out and debt converted to equity.

What has been done will just prolong the pain and cause more collateral damage in the form of foreclosures and bankruptcies of other entities which would have survived otherwise.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Mon Aug 17th, 2009 at 04:27:55 PM EST
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I agree regarding the banking crisis, and particularly the case of Iceland.  But I just wondered if Chris meant to make a general statement about socialization of losses, period, or if it was particular to the discussion of Iceland or the financial crisis.
by santiago on Mon Aug 17th, 2009 at 04:34:59 PM EST
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Socialisation of losses is fine within the right framework, I think.

To me, that means that whoever receives some sort of public guarantee, limitation of liability, or insurance, should actually pay something for it, if they are able.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Aug 17th, 2009 at 05:59:32 PM EST
[ Parent ]

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