Debt - Updated and Expanded

but by literally taking food from the mouths of hungry children, or to think about how many of these poor countries had actually already paid back what they'd borrowed three or four times now, but that through the miracle of compound interest it still hadn't made a significant dent in the principle. I could also observe that there was a difference between refinancing loans and demanding that in order to obtain refinancing countries have to follow some orthodox free-market economic policy designed in Washington or Zurich that their citizens had never agreed to and never would, and that it was a bit dishonest to insist that countries adopt democratic constitutions and then also insist that whoever gets elected they have no control over their country's policies anyway, or that the economic policies imposed by the IMF didn't even work. But there was a more basic problem, the very assumption that debts have to be repaid. Actually, the remarkable thing about the statement, one has to pay one's debts, is that even according to standard economic theory it isn't true. A lender is supposed to accept a certain degree of risk. If all loans, no matter how idiotic, were still retrievable, if there were no bankruptcy laws for instance, the results would be disastrous. What reason would lenders have not to make a stupid loan? Well I know that sounds like common sense, I said, but the funny thing is, economically, that's not how loans are actually supposed to work. Financial institutions are supposed to be ways of directing resources toward profitable investments. If a bank were guaranteed to get its money back, plus interest, no matter what it did, the whole system wouldn't work. Say I were to walk into the nearest branch of the Royal Bank of Scotland and say, you know, I just got a really great tip on the horses. Think you could lend me a couple million quid? Obviously they'd just laugh at me, but that's just because they know if my horse didn't come in, there'd be no way for them to get the money back. But imagine there was some law that said they were guaranteed to get their money back no matter what happens, even if that meant, I don't know, selling my daughter into slavery or harvesting my organs or something. Well in that case, why not? Why bother waiting for someone to walk in who has a viable plan to set up a laundromat or some such? Basically that's the situation the IMF created on a global level, which is how you would have all those banks willing to fork over billions of dollars to a bunch of obvious crooks in the first place. I didn't quite get that far, because at that point a drunken financier appeared, having noticed that we were talking about money, and began telling funny stories about moral hazard, which somehow, before too long, had morphed into a long and not particularly engrossing account of one of his sexual conquests. I drifted off. Still, for several days afterward, that phrase kept resonating in my head. Surely one has to pay one's debts. The reason it's so powerful is that it's not actually an economic statement. It's a moral statement. After all, isn't paying one's debts what morality is supposed to be all about? Giving people what is due them, accepting one's responsibilities, fulfilling one's obligations to others, just as one would expect them to fulfill their obligations to you? What could be a more obvious example of shirking one's responsibilities than reneging on a promise or refusing to pay a debt? It was that very apparent self-evidence, I realized, that made the statement so insidious. This was the kind of line that could make terrible things appear utterly bland and unremarkable. This may sound strong, but it's hard not to feel strongly about such matters once you've witnessed the effects. I had. For almost two years I had lived in the highlands of Madagascar. Shortly before I arrived, there had been an outbreak of malaria. It was a particularly virulent outbreak, because malaria had been wiped out in highland Madagascar many years before, so that, after a couple of generations, most people had lost their immunity. The problem was, it took money to maintain the mosquito eradication program, since there had to be periodic tests to make sure mosquitoes weren't starting to breed again, and spraying campaigns if it was discovered that they were. Not a lot of money, but owing to IMF-imposed austerity programs, the government had to cut the monitoring program. Ten thousand people died. I met young mothers grieving for lost children. One might think it would be hard to make a case that the loss of ten thousand human lives is really justified in order to ensure that Citibank wouldn't have to cut its losses on one irresponsible loan that wasn't particularly important to its balance sheet anyway. But here was a perfectly decent woman, one who worked for a charitable organization, no less, who took it as self-evident that it was. After all, they owed the money.