Monday, October 10, 2011


When I discuss the issue of development and underdevelopment, among the topics I cover are debt and the rise of secondary markets. What are secondary markets, you ask? I'm over simplifying but, in a few words, they're like financial flea markets where market players buy and sell debt and other market instruments that may have been "marked down" or discounted. 

This impacts development because when financial players (or banks) find, or think, they won't get paid for the loans and debt that they underwrite they will sell it to other market players at a discount. It's like the 99 cents store buying books in bulk when they don't sell. But unlike the 99 cent store, the market players who purchase discounted debt don't settle for 99 cents. They pursue avenues for negotiating settlements, or getting countries to pay as much of their debt as possible.

As you can imagine, this means pursuing high cost legal and political efforts. It also means using the levers of the state (i.e. government officials, state courts, and international institutions) to get debtor nations to pay out. Threats and legal pressures are applied. In fact, without the levers of the state, there would be few to no payouts at all.

And the payoffs are big, as you will learn from this article on vulture capitalists.

- Mark

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