November 5, 2011

debt mirror 80&08

by Melissa
There are four main parallels between the Debt Crisis of the 1980’s and the Housing Crisis of 2008:

I      Frontier markets

II    Widespread inability to pay

III  Creditor protection

IV   Ongoing debt management OR  Push back  

photo by a Filipina domestic worker (in honkonginterventions)


Debt crisis in the US:

Big banks in the US made predatory loans-  loans to low-income households which were likely to default (especially as interest rates rise and housing prices drop).  They then leveraged homeowner’s debts for profit in the shadow banking sector.  When the housing loans did indeed default, the banks had effectively spread the toxic debt far and wide-  thus there was a debt crisis that impacted not only the homeowners but also the banks themselves (both a creditor on main street and a debtor in the shadow banking sector (including the securities market).  To “solve” the debt crisis, the big banks were bailed out (given money by the government to pay off their debts).  They were not however regulated or otherwise punished as a creditor.  Homeowner debt has been addressed in the form of the “privilege” to re-finance their mortgages if the market price no longer reflects the terms on their original loan.  In other words, the solution to debt crisis has been creditor protection and debt management on bankers’ terms.

Debt crisis in the Philippines:

As the standard debt story goes, a corrupt dictator and his cronies literally robbed the future.  This is of course true- Marcos’ regime borrowed money from abroad for  “development” projects like the infamous Bataan Nuclear Plant that in addition to the outrageous price paid (padding corrupt pockets) it was also built on a fault line and therefore unsafe for use.

However, this story leaves out a crucial component-  banks in the First World (flooded with cash from the oil boom of the 1970’s) were at the time literally pushing loans across the Third World.  Big banks in the US made predatory loans– loans to companies in the Philippines which were likely to default  (especially as exchange rates fluctuate thus impacting the price of exports and imports).  Philippine national debt jumped from under $1 billion in 1966 to over $28 billion in 1988 as the nation (through its government financial institutions) absorbed the toxic debt of both public and private failures.

As one insider remarked in a 1983 expose about selling money in the Philippines: “American banks, through the agency of loan officers like me, have made a number of questionable loans in countries whose balance of payments is so far arrears that according to Citicorp’s Walter Wriston, ‘ability to repay’ is no longer the main consideration.  All that matters now is ‘access to the marketplace’…”   As US companies expanded their markets abroad, banks followed suit in affect to finance the import of American goods and services.

Moreover, these loans were “unsecure” except through the full faith and credit of the Philippine government.  Despite the chronic balance of payments problem in the Philippines, the young writer goes on to narrate: “American banks persist in the decade-old notion that ‘banks and governments won’t default’… I set about securing a partial guarantee from the Philippines largest bank [likely PNB] which has already put its name on more guarantees than it can possibly pay off.”

The fact is that beginning with Mexico in 1982 countries did default-  but again, US capitalists negotiated the debt to their advantage.  The IMF and World Bank effectively stepped in to protect the creditor.  Debts were “rescheduled” and more loans with neoliberal conditionalities proffered.  Thus, the Philippines has since been on the path of debt management-  a negotiated debt program that has necessitated massive anti-people economic restructuring in addition to starving the nation of necessary public goods like education, health, infrastructure, and technology.

(more on debt[or] management to come)

November 5, 2011

recognizing Wall St in the debt crisis of the 80’s

by Melissa

Perhaps from the outset it seems that the Philippines is unconnected to Collateralized Debt Obligations, mortgage crisis, bank (and European Union) bail outs, austerity measures and other distinctly Western experiences of the last 5 years.  However, this is far from the truth.  In fact, what the West is currently experiencing is a debt crisis spurred by systemic predatory lending.

Analyses of  the US recession and the European debt crisis have been largely silent about the specific parallels between what’s happening now and the Third World’s experience of finance capitalism in the 80’s (that continues today)…  although a recent article in the Nation has captured the political  fallout of the  debt crisis well:

“When the dictates of foreign debt or trade treaties put core economic decisions beyond the control of elected representatives, “democracy” becomes a cruel joke or, worse, a spectacle designed to absorb popular frustration while the real deals go down elsewhere…  The OWS moment seems to reflect a recognition that we have joined our neighbors to the south in being ruled by a system that, whatever its other virtues may be, is powerless to solve the most important problems plaguing the country.”

This blog wants to bring this conversation along-  I want to highlight that Wall St was behind many defaulted loans that created the debt crisis in the 80’s-  and moreover that Wall St. has benefited from this same crisis through debtor management.

There’s an incredible story from a 1983 Harper’s article (Numbers – Adventures in the Loan Trade 11 01 83) that tracks the experience of one American banker engaged in making risky loans in the Philippines and beyond.  This article (and a book called the Loan Pushers (check out this short article by the same author), have re-oriented my understanding of the Third World debt crisis.  I was a baby in the 80’s (and barely that) and my impression of that crisis always includes the history of Martial Law and widespread fraud and corruption under Marcos.  But these articles point to the crisis of finance capitalism:  frontier markets, orchestrated mass debt peonage, and the ongoing crisis of democracy (as we  know it) due to money power.

In the the 5000 years of debt history (thanks Dr. Graeber) a central tension has always been who benefits from debt negotiations: the creditor or the debtor?

Those affected by the current crisis (everyone, no? ) can learn about Wall St. debtor management tactics from the Third World experience.   And more importantly imagine what a worldwide debtor movement might look like?

November 5, 2011

urgency and the act of writing

by Melissa

Here is the beginning of an attempt to live in the open-  to be involved in the important political and economic conversation happening around DEBT.  I am one voice.  I am here in the Philippines for research and discovery.  I am tuned into the Occupy Wall St movement happening in NYC-  a city I love dearly.  I am in support of Occupy Toronto, happening in the city of my birth.  I have prairie roots and Philippine dreams.  I want to make analytical links between all these geographies, connected already in complex ways by instruments of  money, people, ideas, desire…

I feel a sense of urgency about everything-  especially the debt crisis-  this blog is an attempt to write it out, to share this sense of urgency in a way that might contribute to the (good) necessary transformations that can come through crisis.  I believe in evolution-  in our capacity as humans to embrace a new sense of risk and a deeper realization of love.