The Problem With Global Finance

December 07, 2011

The Germans excel at industry, hard work, and invention. Making a loan to Germans is fairly low-risk unless they happen to be fighting a war. Historically, the Italian, Spanish, and Greek nations have been much higher credit risks. Their governments tend to do things such as print money to pay off government debt—something that is no longer an option thanks to the euro. Steve Sailer has made some interesting points about high-social-trust versus low-trust societies, but it doesn’t matter why this is true. It is only important that people realize the German nation pays its bills more reliably than Greeks or Italians do.

But Germany, like every other industrialized nation, has a demographic problem: There are not enough productive young Germans in whom to invest. The aging population has a particularly large pile of capital to loan as a result of their productivity. So they made loans to other nations who are under the Deutsche Mark, which is the technical term used for the “euro.” There isn’t a real problem with the Italians and Greeks and Spaniards using the Deutsche Mark other than the fact that they can no longer print money to pay their debts. The problem comes from loaning Marks to such people as if they were actually Germans. Unfortunately, the ever-punctilious Germans are now just as punctilious about political correctness as they are about obeying traffic regulations, so they clicked their heels together and started making loans to the unworthy.

While my sympathies are with those industrious, stone-faced, rule-obsessed Germans, their bankers made bad loans at good loan prices. I can sympathize with German frustrations, but I can’t empathize, because the German bankers were schlemiels for making these loans. What kind of dumbkopf can’t tell the difference between a German and an Italian? Since when does the “blank slate” theory of human nature apply to banking?

There is such a thing as “moral hazard” on both ends of the financial process. The “homeowners” who can’t pay their mortgages shouldn’t get free houses. The people who made bad loans to the Greek and Italian (and Portuguese and Spanish) governments should also be punished for their stupidity. For the system to function properly, people making loans must be allowed to fail. As a clever wag noted, “Capitalism without bankruptcy is like Christianity without hell.” I feel sorry for the German taxpayers and retirees who trusted their experts and are on the hook for the bill, but if they want to hang someone, I suggest starting with their bankers and politicians. The Italians are just being Italians.

The impending euro catastrophe is only the beginning. The future will bring many such events. From the eurozone to Asia, the industrialized nations are failing to make the only real investment people can make: creating a new generation of useful citizens who can keep civilization’s wheels spinning. The situation with the euro has brought it to the surface more quickly there, but it is the same everywhere else with shrinking populations.


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