Soon after I hit puberty, my father took me aside and said, "Son, you're 29 years old. It's time we had a talk about the facts of life." After our talk, I would never look at the international banking system the same way again.
In my youthful naivete, I had come to believe that banks encouraged deposits because that's where their money came from. But my father, who belongs to the International Brotherhood of Accountants Who Have Been There, Done That and Seen It All and has a vast knowledge of balance sheet lore and wisdom, explained that banks see deposits as liabilities because they have to pay interest on them, money which comes out of the banks' profits.
Loans, mortgages and other forms of debt are a banker's wet dream, because the payments exceed the amount lent, sometimes by a large amount. (I may be paraphrasing somewhat.) The optimal situation, apparently, would be a bank without deposits, just loans; unfortunately, the government kind of likes it if banks try to limit their loans to a specific multiple of the cash they have on hand. The government insists upon it, actually.
Party poopers.
Now, it seems to me that, since governments can borrow much greater sums than individuals, the International Monetary Fund, through the World Bank, decided in the 1970s that the way to make whopping great sums of money was to lend pretty big sums of money to third world countries. These were known formally as "development loans," and, informally, as "the gift that keeps on giving."
These governments, when not totally corrupt, tended to use the money for the biggest projects imaginable - hydroelectric dams, for instance, or large staffs in Washington to lobby the American government for more foreign aid - because the IMF told them that this was what they needed to be like America, and everybody wanted to be like America. Of course, hydroelectric power plants aren't much use in countries where 98 per cent of the population has never owned an electrical appliance, but the IMF economists were using the best theoretical models of economic growth available to them at the time and, in any case, the palace had a constant supply of cheap energy.
Towards the end of the 1980s, someone wondered idly what would happen if those hundreds of billions of dollars in loans weren't repaid. His entire life was immediately classified TOP SECRET, but it was too late. The bubble had burst.
Since the third world economies hadn't expanded the way the IMF models (which, even now, are being brought in line with the experience of the 1970s) predicted, third world countries began falling behind on the interest payments on their loans. This set ties in impeccable three piece suits aflutter; behind the World Bank stands all the local banks which have lent it money. What if the third world debt doesn't get repaid?
Does the term "Domino Effect" mean anything to you?
The bankers who had been tossing around money like drunken sailors on 24 shore leave are now sober and respectable and pushing "debt restructuring." Debt restructuring means different things to different people. To western leaders, it means several more years of profits from some of the poorest countries in the world. To third world leaders, it means not having to pay for those silly social programmes which cost so much but contribute so little to economic growth. To third world citizens, it means the difference between subsistence and starvation.
But, hell, if the banking system of developed nations can be saved by the deaths and increased suffering of hundreds of millions of people in Latin America and Africa, it will all have been worth it somehow.
