The hierarchy of excuses

Isn’t it classically the bondholders, rather than the equity holders, who are immune to getting wiped out (or who at least get the first bite at the carcass)? And isn’t it bonds where the real wealth is stashed, so that giving bondholders a haircut is a generally good idea, from a redistributionist standpoint?

@1 and @2
Yes, it is normally equity holders that get haircut first and only after they are wiped out that bondholders get impaired after that.

While there may not be any significant difference between bondholders and equity holders in general – there is a substantial difference in what sort of accounts will hold bonds vs. equity. Fixed income is the purview of savers and pensions while equity is largely the purview of speculators.

In this instance bond holders purchased bonds believing they had safety of principle and would get a fixed return for their capital. The conversion feature wasn’t a generalized “free upside” if the equity worked out better than bonds but was in fact marketed as actual contingent equity capital in the event the organization became distressed. In effect the purchasers of the bonds said they were willing to have their principal turned into equity if the entity needed it owing to distress. In essence they were prepared to subordinate their interests but weren’t required to – at least until this deal came along.

In general the losses will be borne by pension plans, savings accounts and in some cases insurance companies. Very little will be absorbed by hedge funds or institutional investors. Simply converting this to equity, as was intended, would have preserved capital for a lot more “little guys” – the same number of ‘big guys’ would have been harmed in either event.

The #3 owner is TIAA-CREF which basically invests US teacher pension plans. They expect to take at least a $400 million loss. Don’t tell me its all the same – it very much isn’t.

I think private pensions generally shift from equities to debt as investors approach retirement, so screwing over bondholders might be a way to épater les boomers.

Invariably, the first failures are those of obvious shonks (Australianism?) who would probably have failed anyway. Then there are seemingly reputable institutions that turn out to have been shonky.

I don’t know about Australia, but the definitions I saw of “shonk” online add up to “derogatory term for a Jew”.

Not a good thing.

My Web research confirms what I already knew, that ‘shonky’ in Australian English means something like ‘of dubious integrity or soundness’, thus being similar in meaning to ‘dodgy’. It also tends to support the guess I would make that ‘shonk’ is a less widespread usage, which to my way of thinking suggests the probability that it is a back-formation from ‘shonky’: certainly what it means in Australian English is ‘a shonky operator’. Use of ‘shonky’ (if not ‘shonk’) in the same (generic) sense as the Australian one is reported from some other parts of the English-speaking world (at least New Zealand and the UK), but less frequently: that could mean is spread from Australia, but it could also mean it spread here from somewhere else but then became more common here than in its place of origin.

There are undoubtedly records of its use as an ethnic slur, and that is one hypothesis about the etymology of the generic meaning, but it is only one among many, and there doesn’t seem to be enough evidence to be sure; if it’s not a coincidence that the word is used in both ways (which wouldn’t be the first example of etymological coincidence), I still don’t observe enough evidence to rule out the possibility that the ethnic slur derives from an earlier generic usage. It’s also relevant to point out that the ethnic slur is not current usage, the way the generic slang undoutbtedly is in Australia (although at my age I have to be careful and acknowledge that what I imagine to be current usage may in fact be obsolescent, slang generally changing as fast at it does; if I remember, I’ll ask my daughter whether it sounds out-of-date to her).

A “shonky shop” figures largely as a theme in (English) Terry Pratchett’s Night Watch FWIW. It’s run by a broadly Tibetan/Nepalese/SE Asian guy.

Although Russia and China are certainly “on the capitalist road”, it appears that the 2007–2008 Global Financial Crisis gave them pause about handing the keys to their economies to their finance sectors. The SVB debacle will further support their decision.

I don’t understand the problem: we know that the capitalist system (certainly the present version but probably all versions) works through debt expansion; so some times there will be banking collapses; there was some hike in the interest rate by the fed that is necessary to slow debt expansion but makes a crash more likely. What’s the big surprise?

@John Q

What I mean is that I think that “capitalism” as an endemic problem of lack of demand (underconsumption from one point of view, overproduction from another, but in keynesian term a cronical excess of ex-ante savings VS ex-ante investiments).

This problem was somewhat assumed to be solved during the “great moderation” period, but I believe that the crisis of 2008 showed that it was just because there was a continuous increase in private debt that hid the problem under the rug, but then exploded in the crisis.

But if this is true, there is no “corruption” of the system, it is just the normal working of the system. I did read your sentence “So, I thought I’d get a headstart on listing the hierarchy of excuses, explaining why this isn’t just an inherently corrupt system, doing its inherently corrupt thing” as implying that there was more going on than normal capitalism.

Unless by “corrupt system” you mean that capitalism is in principle corrupt, which is not the way I would phrase it but “internal contradictions” is not completely different so perhaps we are indeed furiously agreeing.