Posts tagged ‘housing crisis’

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)