Friday, April 30, 2010

About Bondholders And Greece

I can't remember where I read it, but somebody recently wrote something to the effect of:
Investors, fearing that Greece won't repay its debts, have driven up Greece's borrowing costs, which paradoxically eliminates the chances of investors getting paid back on existing debt.

I really wish I could find who wrote it because it relies on a stupid assumption, one that Marxists make too often about Capitalists, that the pool of investors is undifferentiated. If you lent money to Greece two years ago, then that means jack shit when Greece comes asking to borrow money from me.

Returning to the parenthetical phrase two sentences ago, Marxists usually assume that the Capitalists are always the Capitalists and they are always out to get the workers. Consequently, they use their capital, with the help of banking interests, to control production. However, if you read Rajan and Zinagles' book, Saving Capitalism from the Capitalists: Unleashing the Power of Financial Markets to Create Wealth and Spread Opportunity, which I was happy to see Reihan recently mention as one of his favorite books, they have a different take. There are incumbents and challengers. Freer financial markets prevent cozy relationships and capture, and allows new firms to emerge and flourish. Terms like bondholders, investors, and especially capitalists distort by oversimplifying and overgeneralizing.

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