Interesting aspects of finance, law and the European situation. By Golem.
A horrid thought has been incubating for the last few days.
I don’t know how many of you know much about Vulture Funds, what they do and how they do it, but it forms the basis of my horrid thought.
Nations issue debt. After it is bought, it often gets re-sold on what is called the secondary market. The price of debt on the secondary market changes much as stock prices change. The market is big.
When a nation looks like it might default the price of its debt begins to sink. What was bought for full price is offered for sale at a reduced price – say 60 cents on the dollar. Buyers and sellers have to decide if they think the nation will proceed to default or avoid it. The decision is, sell now and accept a loss but avoid a potentially larger loss later, or buy now at a discount and if the nation avoids default, profit as the value of that cheaply bought debt recovers its original value.
the article goes on,
Now to my horrid thought.
The ECB had been accepting lots and lots of dubious sovereign debt as collateral for ECB loans. This has been done direct from the ECB, via the ‘temporary’ bail-out fund (the EFSF), the larger temporary bail-out mechanism (the LTRO) and the other bail out mechanism (the ESM).
One way of interpreting this policy, as I and many others have done, is to say it’s a frontal attack on democracy and justice. The transferring of the private debts of private banks, to National Central Banks and then onwards to the ECB, is a multi layered scam run by the financial and political elite to transfer their private bank debts beyond the reach of our democratic accountability.
But what if a European nation did default? What then? Well what is to stop the ECB going vulture? It has ‘bought’ up assets from various European nations at a discount. If one of those nations were to default after,… oh I don’t know – a referendum (think Greece’s disallowed attempt at democracy) or elections that might derail imposed austerity measures (think Spain’s forthcoming elections)? What is to stop the ECB or better yet one of it’s arm’s length funds turning vulture and suing the defaulting nation? Who says the major creditor nations, France and Germany, or those who are themselves hanging by a thread, like Italy, have to accept default?
Full must read article here.