Friday, 8 July 2011

Joe Portugal on borrowed time (not so positive)

Joe Portugal is a middle-income, blue-collar worker whose finances could be in much better shape and he knows it. He’s maxed out his credit cards, every penny he has goes to pay off loans he’s taken out, and he’s taken on new loans to pay off the original loans. He’s regretting his financial mis-management and he wants to put things right, but the sharks are circling. His friend Jane Hellas plans to stop paying off her own loans because she can no longer afford the interest rates she is being asked to pay and Joe’s lenders think he might do the same so his interest rates are rising, too.

Joe’s lenders took out life insurance, car insurance and home insurance on Joe just in case something went wrong. They want him to keep paying off his loans, but also to get their money if he doesn’t. Trouble is, Joe also lives in a world where anybody can insure his life, his home and his car and now Joe spends his time avoiding deliberate crashes, putting out fires and dodging bullets all whilst working himself into the ground to pay off those never-ending loans. Those folks holding these “naked” insurance policies actually want Joe to crash, burn and die because they get big bucks from his misfortune. Joe is living on borrowed time.

It is time to outlaw Naked Credit Default Swaps that give their holders a vested interest in non-payment of the debts they are insuring. Because anybody can invest in these derivatives and therefore insure bonds that they do not even own, there are many people that are not only hoping, but actively working to send companies, local authorities and even whole nations into bankruptcy. The amount of debt insured by Credit Default Swaps far outstrips the amount of the loans actually taken out. Naked Credit Default Swaps are so immoral that even George Soros, a multi-billionaire investor not usually known for his code of ethics, has called for them to be outright banned.

It is common to hear that Southern European countries don’t have a strong work ethic - John Stewart on The Daily Show recently joked about how Greeks retired “just before puberty” – but most of the people of Greece, Portugal, and every other nation currently surrounded by speculation sharks, do an honest day’s work for a pittance. Traders, investors and owners of these Naked CDSs do less than a minute’s dishonest work for a vast fortune.

No comments:

Post a Comment