Tuesday, 12 April 2011

Selling of Debt... WTF???

I meant to write about this when I heard it on the radio the other day, but then I convinced myself I must have been dreaming that people were seriously using this kind of patter. Tavish on newsnight reminded me to look it up though.

The Lib Dems want to sell Scottish Water's debt on the money markets then use that money to invest in the economy...

That sounds smashing - can I sell me debt too? How does that work anyway? You give me money, then you pay off my credit card bills, no?

Ah wait, you give me money to pay off my credit card bills, but I owe you that money back, presumably over a certain amount of time with perhaps some wee stipend to you for your troubles - it's very decent of you to go out of your way like this for me. In any other circumstances I would probably have had to borrow the money... which is kind of like what this is, isn't it? Ah, no in this instance I'm borrowing against my assets - it's a kind of secured loan then is it? No, No, No it's nothing like that, I'm just signing over my assets to you kindly International bankers for safekeeping whilst I pay you back the money, plus stipend, that you've loaned me purchased my debt with. Very good

Selling off debt - LMFAO!


  1. I heard him as well - I'm still mystified. Sounds like a Ponzi scheme.

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  3. It just sounds like borrowing money to me McGonagall - then again the tool I use for digging the garden is a spade...

    @Harry - Bloody Hell! I'm going to leave that up there as testament to the brilliance of whatever software you're running that tracked down a fatuous blog post on money matters and published an advert on credit ratings - C'est magnifique...

  4. Jim, I assume what they mean is Scottish Water owes money to the government, thus they can sell that debt to private investors and spend the cash thus realised.

    It's a bit like the old privatisations, really; the public authorities have a stake in the utility and they sell that stake on the market to realise the cash, which is then spent on whatever, or 'invested' as Tavish predictably spun it the other night.

    So in theory I suppose the Scottish Water debt could be sold to people like you and me, but it's probably better to do these kind of things on the money markets, and of course the privatisations were sold at a discount to bribe the public, so to that extent if offered to the public the Scottish Water debt wouldn't realise as much for the public purse as it would on the money markets.

    As regards the credit card analogy, it would be like you owing money to Nat West and they sold that debt to Barclays. It wouldn't really matter to you, you would just be paying it back to a different business.

  5. Hi Stuart

    Well, I'm not sure I agree with you 100% about the credit card analogy, as the government that Scottish Water owes money too is also the government to which Scottish Water is directly accountable.

    Perhaps it's more like me moving one of my credit card debts from one card to another - which can be beneficial if you're willing to accept the 3% charge and ensure that you pay off the card within the terms of the deal I suppose. Then again if you were in complete control of your finances you wouldn't be having to resort to those sorts of measures.

    Either way, it's a more expensive route than simply borrowing money at the best terms available, without the added complications and conditions. I also think it's a way of masking your true financial situation, therefore it's being less than honest.

    It's the sort of accountancy trick that PFI was based on and which leads us into the sort of structural deficit that we're currently facing (thanks Broon!).