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Strategies & Market Trends : John Pitera's Market Laboratory

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To: Chip McVickar who wrote (4492)	8/30/2001 7:14:12 AM
From: Louis V. Lambrecht	Read Replies (1) of 33421

The IMF ``would stand ready to buy any and all debt of a crisis government to the private sector at a support price significantly below its expected restructured value,'' Lerrick and Meltzer wrote in a May report. The floor would prevent a panic and collapse in the market, the authors claim. The element of uncertainty -- over whether the country would default -- would be removed. The financial system would be insulated from any contagion effects. The country's debt burden would be reduced to sustainable levels. Private lenders would bear the loss, which would have ``predictable limits.'' And all autocratic developing countries would make this as a rule to never repay their debts. Juicy market also for the financial sector, and for the defaulting countries. From the accounting point of vue, you transform a bad debtors account (possible loss) into a financial product you can sell as an asset: losses = assets Banks already sell debt products. Fancy: banks are supposed to cover the loans they grant by other guarantees (Fed fund and bonds, mortgage rights, forein currencies, gold,...financial products). They already package the loans in a loan equity --> loans = assets. IMHO,the only way to help developing countries would be to waive their debt - once and only once - in a global discussion with all participants under the condition that they implement a working financial structure. As a tax collecting system for instance. But this also would suppose a responsible government.... Lerrick and Meltzer would open the door to a debt market (as the Kyote agreement on gas emissions has opened the door to a pollution credits market): no need for the concerning countries to restructure, no remedy, and the situation stays the same in the better case.

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