Watching the latest MacNeil-Lehrer documentary on Third World debt must leave most listeners wondering what the problem really is. The piece showed many aspects of this issue but it didn’t pose the right questions.
We were correctly told that Latin America’s acute debt problem started in the 1970s when oil prices were high and new money started flowing in rapidly. We were told that those countries used their new wealth to borrow massively from U.S. banks and live far higher on the hog than even their new oil wealth justified.
Latin American countries piled up a debt of $400 billion. Of that, $65 to $80 billion is owed to the largest dozen or so U.S. banks, and now those countries can’t afford to pay the interests on their loans, much less the principal.
Then, McNeil-Lehrer gave us the pitch for the Brady plan, named for Secretary of the Treasury Nicholas Brady. He wants the biggest U.S. banks to write off (that is, forgive and forget) 20 percent of their bad loans to Latin America, but the bankers are greeting this idea with solemn silence.
We were told that the Latin Americans say 20 percent isn’t enough, that they must have at least 50 percent written off, plus easy terms for the remainder. This was accompanied by action footage of bloody riots in Latin America caused by their economic problems, the near defeat of the current regime in Mexico by a radical leftist because of economic distress, and pathetically appealing pictures of hungry, crying children.
Now we come to the punch line of this TV segment: two questions posed by a U.S. expert. “Is there the political will to make the Brady plan work, and is there going to be adequate financing to make the plan work?”
Let’s discuss what’s missing from this coverage. What do “political will” and “adequate financing” (these phrases obviously refer to U.S. will and U.S. financing) have to do with the problem of Latin American debt? How did this get to be a U.S. problem? Why has Secretary Brady injected himself in the middle of the problem?
There must be a lot more to this matter than met our eyes and eats on MacNeil-Lehrer, and indeed there is. “Adequate financing” refers to the attempt to use U.S. taxpayers’ money to bail the big banks out of their bad loans, and “political will” means the attempt to browbeat Congress into doing exactly that.
We can all understand that we have some obligation to “do something” about protecting the depositors in U.S. savings and loan institutions, even though the thrifts made essentially the same blunders as Latin America. Those institutions rode high with east money during the years of high oil prices in the 1970s and now are crying uncle since the day of reckoning has come.
But we never made or implied any FDIC or FSLIC guarantees to the big U.S. banks for their Latin American loans, and the U.S. taxpayers don’t owe them anything. What do banks usually do when they can’t collect loans? First, they repossess the collateral, and if that isn’t sufficient the banks write off the debt and take a loss.
Whose fault is it if the smartest, wealthiest banks in the country made huge loans in other countries where they cannot repossess any property? It’s obviously their fault, not the U.S. taxpayers’, and the banks should not shift their mistakes onto the taxpayers.
How have the big auditing firms and the federal bank regulators allowed the biggest banks to continue to list these bad loans as “assets” when everybody knows they are uncollectible?
The Brady plan is to “ask” the banks to write down 20 percent of the bad loans. Why haven’t the auditors and the regulators demanded that the banks write down 50 to 100 percent of the loans that are so obviously uncollectible (both economically and politically, since the Latin leaders are refusing to pay)?
The answer to that question is that the big banks are deliberately dragging their feet on the Brady plan in the hope that they can work out a better deal under which the 20 percent loss will be made up by getting the U.S. taxpayers to foot the bill for the other 80 percent. The big U.S. banks are so politically and financially powerful that they really believe they can pull off this coup.
However, it is unlikely that any of these big bankers will give a television interview and state the question like that. Instead, we will be quietly told that the lion’s share of the Latin American debt will be guaranteed by the International Monetary Fund and the World Bank, and then, at a different point in time, we will be told that Congress should vote a new infusion of taxpayers’ money into those international institutions.
That’s where the “adequate financing” is supposed to come from. The real question is, do the American people have the political will to say, “No deal.”
