Re: [Pen-l] The Bear Stearns of the Atlantic

[Doug Henwood <dhenwood@xxxxxxxxx>]

On Oct 9, 2008, at 2:36 PM, Sean Andrews wrote:

> I recall a quote from a Citibank executive in the 1970s, involved in
> recycling petrodollars, loaning out more than 150% of their capital,
> mostly to developing countries: "Countries don't go bankrupt.

<http://www.leftbusinessobserver.com/HowToDefault.html>

How to default: a primer
by Norman Strong [a nom de plume]

...

The next big theoretical advance came from Walter Wriston, chairman of  
Citibank in the 1970s, who said: "Countries don't go bust." Given that  
this remark was made shortly before Citibank was rendered insolvent by  
the default of more than twenty countries, it might be thought  
asinine, quite deserving the retort of an IMF official; "Yes, but  
their bankers do." However, Wriston's short remark also encapsulates  
great theoretical depth (and, besides, Citibank never went bust, since  
it was eventually rescued by the U.S. government).

The first implication of Wriston's aphorism is that of all entities, a  
nation-state, with its power to tax, is of the highest  
creditworthiness. And second, Wriston's remark was only factually  
inaccurate because of his use of the colloquialism "go bust." Skip an  
interest payment and you've "gone bust." But going "bankrupt" is a  
legally precise concept: to enter proceedings aimed at resolving debt  
issues with the minimum of inconvenience and loss to all. Typically,  
interest payments are suspended, assets are transferred to creditors,  
and creditors recognize that they're not going to get all they're owed.
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