When Morgan Stanley (MS) said in January it had cut its “net exposure” to Italy by $3.4 billion, it didn’t tell investors that the nation paid that entire amount to the bank to exit a bet on interest rates.
Italy, the second-most indebted nation in the European Union, paid the money to unwind derivative contracts from the 1990s that had backfired, said a person with direct knowledge of the Treasury’s payment. It was cheaper for Italy to cancel the transactions rather than to renew, said the person, who declined to be identified because the terms were private.
The fact is that politicians have been fools and worse in their dealings with the banks. They literally sold the public trust to the highest lender. The banks have been sharks–it is their DNA. They never have been trustworthy advisors and yet all over the world they were handed the keys to the city while insanely rewarded and admired for their trickery. The taxpayers/voters/consumers have been complacent because they didn’t really want to know how they were getting away with more by paying less and piling into debt. The blame is on all sides here, and yet no one wants to accept their lumps.
Now after the inevitable blow up has finally hit, the politicians have been fixated on covering up their mistakes while the banks have been focused on making sure that they do not admit the losses they incurred by making bad bets. Some individual borrowers have escaped debt through default and bankruptcy, but even then we fellow taxpayers are left holding the bag for the debt because governments keep back stopping and making banks whole. The perfect fraud. Except that it is now killing the world economy. Here is the direct link.