The triple fault of the big private banks

While big banks and investment funds are collapsing everywhere in the northern countries, the leaders of the world's major banks evoke a simple correction of the system, admittedly painful, but not dramatic. Pour Damien Millet et Éric Toussaint, cette réaction est bien la preuve que l’annulation de la dette du tiers-monde —qui serait moins sèvére que l’actuelle crise— n’est pas une utopie, mais une exigence réalisable. For Damien Millet and Eric Toussaint, this reaction is proof that the cancellation of the debt of Third World-which is less than the current sèvére crisis-is not a utopia, but a requirement achievable.
Since August 2007, banks in North America and Europe are under the spotlight because of the very severe crisis they cross, and they crossed the neoliberal economic system as a whole. The current impairment of assets which they have had exceeded $ 200 billion. Several research services for banks and senior economists believed that the bill will exceed 1000 billion .

How banks have they been able to build a mounting debt also irrational? Avides profits, the agencies have provided mortgage loans to a sector of the population already heavily indebted. The conditions of these loans to high-yielding (to the lender) is a real scam: the rate is fixed and reasonable in the first two years and then rises sharply thereafter. Lenders borrowers claimed that the property they were buying would quickly saw the value of the increase in the price of real estate sector. The problem is that the bubble of the real estate sector eventually explode in 2007 and prices have started to fall inexorably. As the number of defaults has increased, the mortgage agencies have found it difficult to repay their debts. Major banks, to protect itself, have refused to grant new loans or have demanded much higher rates. But the spiral did not stop there as banks had bought mortgages in very large quantities, and largely off-balance by creating specific companies called Structured Investment Vehicles (SIV), which financed the purchase of mortgages High Performance turned into securities (CDO, Collateralized Debt Obligations).

From August 2007, investors have continued to buy commercial papers issued without guaranteed by the FSS whose health and credibility had sharply deteriorated. Accordingly, the FSS have lacked liquidity to buy securitized mortgages and the crisis has grown. Major banks that had created these SIV had to assume the commitments of them to prevent them from falling into bankruptcy. While so far the operations of SIV were not part of their accounts (which enabled them to conceal the risks taken), they had to include in their balance sheet debts, FSS.

Result: panic aboard! In the United States, 84 mortgage companies have gone bankrupt or partially ceased their activity between January 1 and August 17, 2007, compared to only 17 in all of 2006. In Germany, the bank IKB and the Institute public SachsenLB were rescued extreme accuracy. Recently, England had to nationalize the bank Northern Rock fell into bankruptcy. On March 13, 2008, the fund Carlyle Capital Corporation (CCC), known for its closeness displayed with the Bush clan, has collapsed: his debts accounted for 32 times its own funds. The next day, the prestigious bank statements-unienne Bear Stearns (5e banking business in the United States), short of cash, has called for using the Federal Reserve of the United States (Fed) for funding of emergency. It will be bought by the bank JP Morgan Chase for a bite of bread.

Several segments of the debt market are flawed buildings in a state of decay. They lead their setbacks in the powerful banks, hedge funds, investment funds that had created. The rescue of private financial institutions has been made possible thanks to the massive intervention of public authorities. Privatisation benefits, socialization of losses are once again in order.

But a question arises: why banks, which now do not hesitate to erase bad debts by tens of billions of dollars, they still refused to cancel the debts of developing countries? They thereby demonstrate that it is perfectly possible, and absolutely necessary. Recall that the root of current debts claimed by banks in these countries, there are criminal dictatorships, corrupt regimes, leaders loyal to the great powers and creditors. Major banks have lent in addition to unsavoury regimes as those of Mobutu in Zaire, Suharto in Indonesia, the Latin American dictatorships of the years 1970-1980 as well as the apartheid regime in South Africa. How can they continue to impose the yoke of debt to the people who have suffered from the dictatorial regimes that they themselves have funded? On the legal front, many odious debts listed in their books and do not have to be repaid. But banks continue to demand their refunds.

Recall also that the debt crisis of the third world has been caused in 1982 by the brutal and unilateral increase in interest rates decided by the Fed. Previously private banks had lent to turn arm variable rate for countries already heavily indebted, finally unable to cope. Today, history is repeating itself, but this time in the North and in a specific way: overindebted households in the United States are no longer able to repay their mortgage at a variable rate because the real estate bubble burst.

The deletions of debt that banks realize vindicate those who, like the CADTM, demanding cancellation of the debt of developing countries. Why? Because long-term debt of governments in the Third World against international banks stood at 181.9 billion dollars in 2006 . Since August 2007, they have already had to remove an amount much higher, and it's not over…

Large private banks have thus tripling fauté:

-- They have built disastrous montages of private debt that led to the current disaster;

-- They have lent to dictatorships and have forced democratic governments which succeeded until the last penny repay this debt odious;

-- They refuse to cancel the debts of developing countries while their refund involves a deterioration of the living conditions of people.

For all these reasons, we must insist that they are accountable to their actions over the past decades. The governments of the countries of the South must carry out audits of their debt, as was done in Ecuador today, and repudiate all their odious and illegitimate debts. The show their bankers that it is perfectly possible. It will be the first step to get to finance its role, that of tool at the service of human beings. Of all human beings.
Éric Toussaint * , Damien Millet **