False Economy - Alan Beattie [21]
Even the machinations of clever government ministers had not enabled Argentina to escape its familiar problems: inability to control the finances of the provinces; a small and stunted export sector; an economy too dependent on volatile agricultural earnings; and perhaps above all, a sense of national entitlement hugely out of line with its historic achievements.
The Argentines themselves were not the only ones to believe that their country was, fundamentally, a solid, stable European nation incongruously tacked on to the edge of a dysfunctional subcontinent. The suckers of the 1990s included, with a twist of vicious historical irony, thousands of not especially well-off Italian investors, whose view of the country to which their forebears had emigrated a century earlier was sadly askew. The investors who filed case after case against the government of Argentina in the law courts of New York were furious and bewildered that a country that boasted so strongly of its credentials as a First World nation should renege so spectacularly on its debts.
At dozens of different points of departure over the previous two centuries, it could have gone the other way around. It could have ended up with British investors suing the United States in the courts of Buenos Aires after the United States had frantically borrowed in sterling, the euro, the peso—anything to keep ahead of another bankruptcy.
In fact, it still could. During the Second Golden Age of globalization, the United States, too, was not immune from the deception that everything was fine as long as it could keep borrowing. Throughout the 1990s and the 2000s, the American economy as a whole ran an ever larger trade deficit, financed by borrowing from abroad. The vendor finance arrangement of the First World War was now reversed: the rest of the world—in particular Asia—was now lending the United States the money to buy imports, though in this case they were iPods and flat-screen TVs rather than machine guns and military uniforms. This was not entirely the United States' own doing. It was driven by the rest of the world, notably Asian governments, shoveling money into the United States by intervening to sell their own currencies and buy dollars. But the administration of George W Bush compounded the problem by perpetually pointing to the current account deficit as a source of strength, not of weakness. Here was evidence, they said, of the willingness of the rest of the world to lend to America, not of America's own reluctance to save.
What sparked the U.S. financial crisis was the way that borrowing was being financed domestically. Decades of deregulation had produced ways of borrowing and new financial instruments so complex that not even the banks that produced and sold them really understood what they were handling. An overconfidence similar to that which has carried Buenos Aires into disaster after disaster then took hold. Critics were dismissed as doom-mongers. The short-term interests of banks and other financial institutions were allowed to prevail over the rest of the economy. A real estate bubble was allowed to inflate absurdly. Mortgages were extended to people with "subprime" credit histories—the Argentinas of the U.S. housing market. Those loans begat yet more borrowing, as the mortgages were turned