1000 Alitalia in one shot: so' forti 'sti Amerikani .... (II)

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Absolutely yes. Italian local governments, as documented in a past episode of Report on Rai3, have been exploiting derivatives offered to them by Italian and foreign banks, which were designed to give them money in the present and in the next few years of their mandate, while shifting all the duties and the reinboursements to after their present mandate. To add spice, the amount of money given to them by the banks now is about certain and does not reflect market fluctuations, while the money they have to return eventually is much larger than the one they should have returned by issuing ordinary bonds and furthermore it is significantly affected by market fluctuations. Often the risk of market fluctuations is entirely charged on the (stupid) Italian local governemnts, while the banks could not possibly loose because of market fluctuations. Of course the banks quite safely bet on the fact that the Italian central government will at all costs back up bankrupt local governments no matter how stupid, incompetent dishonest and corrupt they were. At some time, the Italian central government adopted regulations thar were intended to prevent local governments signing derivaties that were not centrally scrutinized and approved.

And who will back up a bankrupt central government no matter how stupid, incompetent dishonest and corrupt it is?

We have seen how financial crises in relatively tiny economies have rippled through other developing markets. If there is a financial tidal wave of American proportions, it seems to me that the Italian debt sand castle is the closest to shore.

But this is not my field. If someone more knowledgable can discuss the contagion risk for us, it would be very much appreciated. 

"Contagion", or whatever you want to call the fact that X in country A holds assets/liabilities against Y in country B) has little to do, if anything, with the size of either country A or B. It just depends upon having or not having closed/open financial markets and capital mobility.

In this specific case, I am afraid, the size of the country counts little. Dozens, hundreds, of hedge funds and other financial institutions seat in micro countries like Bahamas, Andorra, Liechtenstein and so on. Short of having one currency and one central bank for each small country (and closed capital markets on top of it) the two things are completely unrelated.

Let me chew on it.

I just want to make sure we talk about the same size. I understand that just because there is a crisis in a big (GDP) country like the US does not mean other big countries (France, Germany) are automatically at risk.

But if Uncle Sam decides to pull out his credit card, which is already stretched out, to help out within his household, it seems that it might have an impact on other countries struggling with hefty credit card bills.

I mean, it's not the first time Italy had a collapse. In 1992 the Lira was pegged to an overly strong Mark (German policy toward East Germany, etc...), it faced a recession (like now?), and the world economy was feeling the impact of a US real estate crisis (remember D.Trump being po' at the time?), kind of like now. And for the astrologers (but this is just a coincidental parallel), even then there was a Bush president fighting a war in Iraq.

Back then the Lira got a spanking, but right now the presence of the Euro makes things a bit harder to undestand (for me). I just wonder if having this fragile Italian situation "pegged" to this strong Euro is not worsening the situation and delaying the inevitable, kind of like Argentina pegged to the strong $.

I don't know, but a weak growth (if not negative), rising inflation, and potentially rising rates, is a recepy for trouble ahead for a highly indebted "entity".

Am I wrong? 

No idea. I do not even understand what you say, frankly.

Tradotto: non so se hai torto o ragione. Non capisco neanche cosa sostieni, e non credo sia l'inglese. 

Non so neppure io se ho torto o ragione.

Quello che voglio dire e' che spesso gli economisti si concentrano a spiegare quello che e' successo (cosa molto importante), ma tante volte non si sentono (o non vengono ascoltati) avvertire di un pericolo imminente.

Ora, io non sono in grado di quantificare nessuna previsione (non sono un esperto di mercati finanziari), e forse mi sono fatto spaventare da Bush che rassicurava sull'FDIC. Pero' mi chiedevo che impatto potesse avere sull'Euorpa (e in particolare sull'Italia) quest'ultima crisi.

Forse la risposta e' niente di che, pero' se c'e' qualcuno che se ne intende e ha dei numeri per fare qualche previsione per quanto riguarda la situazione italiana, sarebbe interessante.

I've seen that episode, but I don't trust them when they talk about this kind of stuff, and for a good reason: they are even more clueless about economics than me.

In this case, they spent most of the time blaming the banks for selling a contract favorable to them, and local governors for buyng things they don't understand.While they do have a point here, they didn't even consider the other scenario, where the governor knows it's a bad business for the government but a  good one for himself.And I'm pretty positive that both events do happen in real life.

I do trust report on the field work to collect the facts, not on the analisys.