Debt Forgiveness

Just to share something after reading "The Sages" by Charles R. Morris.

When I was young, I noticed that there are some people who, confronted by the issue of the national debt, insist that the first world countries, since they are already rich, must forgive the debts of the third world countries, their borrowers.

That's a kind of thinking that borders on naivety and now I know why. Basically, it's not countries but banks which lend money to third world countries. And these banks get their money from other sources. For instance, according to one of the book's footnotes, the biggest American banks mostly got their money from the OPEC nations, which had deposited their oil earnings in these banks' overseas branches. These banks in turn found a way to convert these deposits into earning assets by granting loans to developing countries. However, since the OPEC deposits are interest-earning, the banks had to make sure the countries pay their dues on time so the banks can meet their obligations with their respective depositors. So, even if the banks maybe amenable to debt forgiveness, they can't because doing so would not allow them to meet their contractual obligations (did I just repeat myself?).

Anyway, there you go.