Friday, July 29, 2016

Italy Setup Similar to pre-1931 America #GreatDepression

Italians invest more in bonds than any European saver. Their faith in sovereign debt, an asset class that history shows us almost always defaults, changes the bailout dynamic for Italy.

The Great Depression hit so hard because foreign debt issued in small denominations was sold to the American public (not the rich) ahead of it. With the crisis hit in 1931, the disperse, mom-and-pop ownership of debt and equity made a structured bailout impossible. The sovereign debt crisis of 1931 and farming crisis of the 1930's forced farmers into default, the money supply to contract across America, and supported a huge contraction in the economy from 1931 to 1932. A similar pre-1931 setup exits in Italy today. This setup would normally be relieved by devaluation of the Lira. A contagion is inevitable since devaluation is not option in the one policy fits all Euro.

Headline: Households on the Hook for Italy’s Next Bailout

Vincenzo Imperatore wants you to know he was just following orders: Selling risky bonds to customers seeking safe retirement nest eggs was only part of the job. When financial markets shut during the financial crisis, depositors were Italian banks’ most reliable source of funding.

“I was getting five, six calls a day from my bosses pushing me to sell them,” says Imperatore, who helped sell products to retail customers for six years at UniCredit SpA in the Naples region and has written two tell-all books about his experiences. “I was instructing the local salesmen to do the same.”



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