Crimes of forgiveness

Crimes of forgiveness

Forgiveness is good for the soul. Debt forgiveness is the juice that keeps the economy fresh. If all debts were honoured then capitalism would close up shop. Debt forgiveness can be  egalitarian. Social movements promoted the forgiveness of odious debts incurred by developing world governments. Debt cancellation has been a recurring plank of radical politics through history. Yet debt forgiveness can be and mostly is a tool of maintaining the hierarchy of wealth. The richer you are, the more you owe in debt, and the easier it is to have that debt written off. Owe the bank a billion pounds and they might agree to collect 15% of it. Try styling that out with your mortgage or your credit card.

When governments get involved this amounts to a kind of larceny. Firm owners with an incentive to take on too much debt and then escape it through bankruptcy will do so provided there is a cosy regulatory arrangement with few penalties (Akerlof and Romer 1993). This can be seen in the great recession of 2007-9, and at other times where debt crises produce government bailouts in the name of Keeping The Economy Working. It is a form of economic parasitism and organised crime. There is a network of companies who engage in this mutually parasitical action, supporting each other in it. Governments guarantee a vast amount of debt/obligations so it is a big sea to swim in. There is then a spreading threat of looting along with some coordination of looting activity. A key distinction which makes it looting is that bankruptcy is the strategy rather than the result of high stakes risk taking, as Akerlof and Romer put it, it is a plan to ‘go broke’ not ‘go for broke’.

The attack vectors used by firms whose business model is debt looting are: inflated net worth using accounting tricks (pretty much normal through the whole economy up to the financial crisis of 2007), using the expected yield curve (another accounting convention), and leveraging debt for acquisitions. Take on risky assets and blow the thing up. One technique is creating illusory capital through transferring ‘assets’ which are in fact liabilities. This allows the company to pay itself much more than it is worth.

The authors do not frame this as moral hazard – the worry of mainstream economists – but as massive socialisation of risk through debt acquisition. The main economic frame used is excessive risk taking. However that doesn’t capture the way in which those involved deliberately take risks they know will fail in order to loot.  Therefore we need the tools of criminology rather than economics to fully grasp the extent of the problem of economic looting through deliberate debt failure and stop framing it as just self deluded risk taking. That framing feeds into the self conception of the Masters of the Universe as unlike mere mortals. Treat these crimes as organised crime – well coordinated, planned and able to leverage insider power and political connections.

Akerlof GA and Romer PM (1993) Looting: the economic underworld of bankruptcy for profit. Brookings Papers on Economic Activity; Washington (2). Washington, United States, Washington: The Brookings Institution: 1. DOI:

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