Wednesday, July 15, 2009

Teleb and Spitznagel Call for Debt Cancellation

Taleb and Spitznagel have an excellent grasp on the problem of high debt, and getting people thinking about debt cancellation is a good thing. They also point out the folly of current economic modeling, and the failure of the economists in general. But their proposal to convert debt to equity is highly problematic.

The idea is taken straight from corporate finance: Corporate debt holders, rather than receiving cash payment, will sometimes receive ownership shares in the company. Debt holders can often be forced into this conversion against their will, as the article suggests.

However, this article is the perverse opposite of that process. Rather than debt holders being forced to accept equity, he is suggestion that owners be forced to give away shares to debt holders! The idea that we should support a system in which debt holders forcibly acquire an ownership stake is highly objectionable, in fact, it is outrageous.

The proposal would benefit one group: the debt holders who are seeing their debt-generated wealth evaporate on a large scale. Now that debt payments are defaulting like crazy, these parasites are trying to get hold of the underlying assets. It is an outrage! And an example of the priveleged elitist attitude which sees the entire world as a bunch of cattle to be milked and butchered for their profit and convenience.

Taleb and Spitznagel are speaking for the parasite class, and as far as I am concerned, they should be told to go to hell. There will be no forcible debt to equity conversions.

The solution to a high debt depression is a Jubilee renewal, freeing the people from their debts, not a bail out for the parasite class. The government can directly pay off debts, and simultaneously raise bank reserve requirements to absorb the excess money to avoid inflationary effects. This is the People's Bailout, and we could do it right now, without violating any laws or contracts.


Herschel Talker said...

Nice blog. I completely agree with you on debt cancellation. That is exactly what I tell everyone, and they don't understand what I mean. Very frustrating.

Jubilee is a big concept in Judaism. But maybe the title should be Shmittah. Really loans are forgiven every 7 years in the shmittah cycle. Jubilee is every 50th year.

Keep up the great writing.

Justin said...

Thanks for the kind words, Herschel. I had not heard of Shmittah, I will have to look that up.