After the discouraging developments in the stock market last week, you may be wondering how exactly the global economy ended up where it is now. PUP author Amar Bhidé recently wrote an op-ed piece for Project Syndicate that should answer some of your questions.
Bhidé explains why “lending to foreign governments is in many ways inherently riskier than unsecured private debt or junk bonds”: governments, unlike private borrowers, are not required to offer any collateral to lenders.
On top of this, the practice of sovereign lending has evolved from “a job for a few intrepid financiers” to an institutionalized practice for large banks. What was once a risky venture for individuals is now a risk taken by the same banks in which we invest our money–Citibank, to name one–bringing the global problem very close to home.
The article has a lot to say about the lessons we should take from the current sovereign lending crisis. Click here to read more, then pick up a copy of Amar Bhidé’s The Venturesome Economy to learn more about global economics in today’s world.