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Monday, 31 December 2012
The Profits of Blame

by Theodore Dalrymple (January 2013)

Who is more to blame, asked the seventeenth century Mexican nun, Sor Juana Ines de la Cruz: he who sins for pay or he who pays for sin? It is not an easy question to answer.  more>>>

Posted on 12/31/2012 9:36 AM by NER
17 Jan 2013
Send an emailMary Jackson

Once we had ethics that guided our actions in advance

Did we? South Sea Bubble, anyone?

Anyway, excellent article. And I do hope you find your other sock.

28 Jan 2013
Charles Pergiel


1 Feb 2013

"the risk of default associated with the original Argentine bonds was written into them by the high rate of interest which they bore, and that therefore the bond-holders have no moral right to complain when the bonds were in fact defaulted upon"

I would like to add a further consideration to this line of reasoning from the FT.  Argentina wrote into their bonds a 'pari passu' clause which means that the government cannot pay interest to some creditors and not others (this is the basis for the current legal action in the US, please see  Perhaps Argentina was able to borrow at a lower interest rate because of this clause, as it provided greater security to lenders.  One could argue therefore that it would be immoral for Argentina to have benefitted from borrowing at a lower rate than otherwise would have been the case (without the pari passu clause) and then to repudiate its pari passu promise.

But in the long-run such things (and morality arguments) don't really matter.  Argentina will be punished by market forces since its lenders will demand higher interest rate in the future than would otherwise have been the case  without such bad behaviour.  Argentina's economic growth will be lower because of the risk of expropriation/inflation/currency controls associated with an overleveraged government.  The total loss of welfare for Argentinian citizens would likely be the same without or with default, although the later effect will be spread over many years and will be more difficult to measure.

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