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   v. April 9, 2014
nation bailout - economic theory and its application - how-to for beginners - teach yourself economics


Nation bailout? Teach yourself economics

This page has just been created. It will during the next days get a coherent list of basic information how to proceed if a nation bailout is needed.

This page was created when nations like Greece could not any more obtain lenders for the debt increase, caused by high deficits of the public national budget. European politicians and members of parliaments behaved on a mostly emotional level: "We should help the EU member state Greece."

The prevailing lack of economic knowledge caused the risk to transfer a huge volume of EU taxpayers' money for the benefit of financial speculators. Therefore this information page will start with the analysis of the most common and most dangerous errors.

Links related to this
» Financial crisis / MENU   EN DE FR


» Marfinettes: Betting on bad governm.?   EN DE FR
» Marfinosi: Bet on weak governm.?   EN DE FR
» Nation bailout? Teach yours.econom.   EN DE FR

» Hinder Euro Bankruptcy   EN DE FR
» Rating agenc.: Citizens protest   EN DE FR
» Childrens petition against public debt   EN DE FR


Will investors loose or win money?

Investors will typically not loose money if they made their investment after a country was already known as a candidate for financial trouble. From this point of time, new investment is entirely a game of financial speculation.

The interest rates for new bonds of that country may reach a usury level, like 10 or more percent per year.
Example: Greece in September 2011: 19 percent.
This speculation is like an insurance risk agreement. It is governed be the rules of risk calculation like insurance company risk evaluation. The fincancial markets define the risk primes.

If other countries help to cover the debt, then financial speculators are those who get this money in an indirect manner - and in addition these prior interest rates. The sacrifice of the taxpayers from other countries does not go to the country and its cititzens. It goes into the pockets of financial investors - and many of them speculators, betting on emotional politicians without real knowledge of the decision subject.

What would be a real real help for a country with financial problems?

If the financial help should be for the country and for its citizens, it would be for investment with the creation of new jobs and additional economic activity. This, if properly conceived, would reduce the budget deficit to zero. (Less need to spend survival budgets to poor people...)

Read more on this on some pages of the website:
vox7.com : The VOX7 Concept for full employment

Be aware that this might be controversial. When financing job creation in some other country, this might affect the job statistics in the helping countries... This is a complex subject of economic theory and of the specific real economic facts. This document is not the place for more details related to this.

Should the country continue to pay its debt?

It is not helpful that a country in a difficult financial state pays its debt in time to past lenders. These lenders will typically receive low usual interest rates and will typically need a secure long term type of investment. If the country would exchange these lenders by new ones, it would have to pay so high interest rates that there would be no chance to fullfill in the future all obligations.

There are various ways to avoid the obligation to exchange lenders. This can only be resolved in a case by case manner or by legal constructs.

It is not the intention to add here a list of possible solutions. The purpose was only to show how money transfers to this country ("financial help") can increase the problem instead of reducing it.

An interest rate of 19 percent, is it usury in the legal sense?

The legislation related to usury differs much from country to country. It even differs between the various single US states.

The risk evaluation for loans in modern banking since 1990 or 2000 results in interest rates depending from the lender. Consequently, former court rulings from past decades do not properly cover this new situation. If the market defines that a specific country has to pay 2 times of the interest rate of some other country, then that higher interest rate is in our times the tolerable legal average value.

This might be the current legal status in most countries. This is because it is adopted in an indirect manner by various international regulations of financial markets and of accounting rules.

This legal result appears to be not satisfactory if a country has to pay execessive interest rates while being a well organized modern nation and democracy.
Example: Greece had in September 2011 to pay an annual interest rate of 19 % for new loans

The purpose of the worldwide existens of anti-usury legislation is just to avoid that a borrower is forced to pay a mulitple - in this case apprixmately 5 times of a resosable interesr rate. So the usury aspect can be helpful when trying to find reasonable solutions for a borrowing country.

An important consequence of these high interest rates is: The investors make a duplicate profit. The first profit is to get earnings from interest rates which conform to the traditional definition of usury.

The second profit is, when taxpayers' money makes that there is no risk, or at least only a minimal risk.

If there is a political concept in discussion which tends to limit the risk of private lenders to 20% from the capital, then there is no important risk to lend money for an interest rate of 20 % per year.

This demonstrates how the financial investors, their lobbies and the political decision makers are a coherent family where everything is related with everything: This is the subject of the theory of " Marfinetten" and "Marfinosi"

Conclusion: The legal aspects as well as the facts of the interest rates paid by a borrowing country, this is a vital element for possible solutions. Investors should at least loose in a debt setllement as much as they earned from interest rates above low rates of the capital markets.

» Marfinettes: Betting on bad governm.?   EN DE FR
» Marfinosi: Bet on weak governm.?   EN DE FR

Those who bought bonds for 50 %, why should the taxpayer make to these rich investors a grant which will double their wealth?

The most discussed bailout example in the history of modern financial markets was Greece in 2011. This is a nice example and symbol when considerung Greece as a basic element of current occidental civilisation.

But instead of emotional language like "help for Greece", let us check the numbers and facts.

In late August 2011, European politicians had definitely concluded to be convinced that investors would need loss risk compensation by the taypayer.

At that point of time, Greek bonds were bought by investors for an average of 50 % of their nominal value. Politicians in their unlimited understanding of the banking lobby instead of economy, wanted to limit the losses of the so-called "private" investors to 20%: Hence 80 % of the nominal values should be maintained.

This horrible "sacrifice" and "contribution" by these current new private investors would mean that they would get 80 % of the norminal value. If a wealthy investor bought bonds for 50% of the nominal value and finally gets from the taxpayer 30% on top, then the relatively poor average taxpayer increased the wealth of the richest persons of this planet with 60%.

On top of this, the private investor gets the accumulated result of at least 2 times of the current usual interest rate (because he invested only 50 % of the nominal capital value). The total of these advantages may count for a duplication of the fortune of the richest persons of the world, paid by the community of European taxpayers.

A brave new EU world: EU politicians want to force the community of relatively poor European citiizens to make gifts to the richest persons of the planet, by doubling their fortune.

Conclusion: These aspects are a vital element for possible solutions. Investors should at least loose in a debt setllement as much as they earned above low rates of the capital markets.

Members of Parliament who have been convinced by their party leaders to vote for bailout packages for a country: Have they ever been told these facts of the financial markets? Do they know that the taxpayers sacrifice will not help to create more economic activity for the citizens in a country but will duplicate the wealth of financial speculators?

Would any member of Parliament vote in favor of such bailout financing, when being informed about these facts?

Members of Parliaments in the EU, did they know this?

Members of Parliament who have been convinced by their party leaders to vote for bailout packages for a country: Have they ever been told these facts of the financial markets? Do they know that the taxpayers sacrifice will not help to create more economic activity for the citizens in a country but will duplicate the wealth of financial speculators?

Would any member of Parliament vote in favor of such bailout financing, when being informed about these facts?




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The delegation of legal power to rating agencies increases the risk that countries will need bailout schemes.

The legislator in most developed countries has delegated legal powers to rating agencies.

The initially unknown future autonomous decisions by rating agencies have been awarded the effects of legislation.

These legal effects decide on the fundamental question if pension funds and other regulated investment schemens can be covered by an investment in bonds or shares of a specific company or country.

The decisions of rating agencies are within their sole competence. Legislation does not include a strictly regulated binding evaluation scheme. Consequently, power of legislative impact has been delegated to a small number of private companies. For close to all countries, this power delegation was even to a private company outside the legislation competence of that country.

For example, Germany and France delegated these decisions of legislative impact to companies which are not from Germany or France.

If these rating agencies decide to downgrade a European country - Greece for example - , then the legislative effect of this is as follows:

All institutional investors in Europe have to adopt in their accounting system various consequences. This might affect the economic situation of banks and other institutions, for example, might oblige them to reduce borrowing to their customers.

All institutional investors in Europe which are obliged to observe specific security rules, may be obliged to sell the correponding investment items, this way increasing the financial problems of the specific country.

This means: The effects of this legislative powers of rating agencies have an impact on the economy like the level of major political decisions of parliaments and governments.

There are various possible solutions. But the first and instant step has to be to suspend all regulations which submit institutional investors n the future to the future still unknown decisions of rating agencies.

Institutional investors have to restore their own risk evaluation services. Their managers have to return to their own individual responsibility for investment risks. This would terminate the current typical excuse for losses "but we invested conforming to the evaluation of the rating agencies".

Governmental organisations for the control of the financial markets, of banks and of institutional investors have to create own national concepts of similar effects like the ratings of rating agencies. There is no need to imitate the current concept of rating notes like AAA and so on. This concept has proven to be one of the causes of repeating financial crisis periods.

For the European Union, such new evaluation responsibilities would require some coordination on the EU level.

Otherwise legal proceedings would be possible, due to the EU rules of market harmonisation.

Rectification suggestions for the content of this page:

please to: ok @ mrmio.com
Your main text in one of: English, German, French, Spanish.
Appended documents may also be in Russian, Arabic, Chinese, Portuguese.

Suggestions for financial support for marketing a specifc subject - or for media investment - are also welcome.

Teach yourself crisis economics:
For members of parliamant and their consultants, for governmental decision makers and for invest bankers:
Berlin, Frankfurt, London, Paris, Brussels, Madrid

One-day seminars, 4 x 1 hour + discussion, in English or German or French or Spanish

Small groups, individual agreements (date, fee).

This is mainly thought for members of the Deutsche Bundestag, Berlin, and their staff.
This is because the risk of huge money and wealth transfers from the taypayers to the richest persons of the world will not take place if the majority of the members of the Deutsche Bundestag will have learnt enough knowledge in crisis economics. In this case the vote will probably be "no"="nein".





Spanish proverb: "Don't offer me advice. Give me money."
Arabic proverb: "Keep the gold and keep the silver. Give us wisdom."
Suggestion: "First the wisdom, only afterwords the money."


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