Silver Lining? Possible Leverage for Debtors

by Dollars and Sense

Very interesting blog post by Doug Henwood of Left Business Observer; what he's pointing out could be the basis for organizing leverage for ordinary folks. We were sorry to miss Doug's talk at Left Forum; he was on a panel on bank nationalization that also included Fred Moseley, author of our March/April cover story. We didn't even get to chat with him at our exhibit table, so we weren't able to have our yearly conversation about whether D&S and LBO are rival publications (they are not—everyone should subscribe to both). —cs

In the course of a pretty wonky piece on CDOs, Felix Salmon points out that the modern financial environment weakens the political position of creditors. Back in 1975, when New York City was on the verge of default, its bonds were uninsured, and held mostly by the city's rich and its biggest banks. Both sets of bondholders were relatively few in number and invested in the city's long-term survival. The creditors were able to come together and speak with one voice to force wage cuts and layoffs on the unions and service cuts on city residents. Today, bondholdings are dispersed around the world, so it's hard to imagine a similar workout in 2009.

There's an interesting parallel with Argentina's deliberate default early this decade (a default which followed the script laid out in this LBO article: How to default). Because Argentina's debts were held mostly by bondholders all over the place, many with rather small holdings, the creditors were in a very weak bargaining position. The contrast with the debt crisis of the early 1980s was stark. Then, a dozen bankers, backed by the IMF, could face down a finance minister in a conference room and demand the concessions for which neoliberalism became famous. But that was no longer possible in a world dominated by bond finance.

And in today's securitized, derivatized world, mortgage holders often don't know who their creditors are. In fact, it could even be easier for debtors in a single neighborhood to organize than their creditors, who could be anywhere from Frankfurt to Abu Dhabi.

(This is the full post.)

Labels: CDOs, creditors, debtors, Doug Henwood, Felix Salmon

 

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4/24/2009 03:31:00 PM