While I laugh at this story today, I suppose we cannot really discount anything here in the United States of Subprime. Things we'd have laughed at a decade ago, now seem to be part of normal every day life.
The Kuwaiti Parliament has a solution for the debt of its consumers. Have the government buy it all, write off the interest, and reschedule the payments. This is so outrageous that even the Kuwaiti central bank and its executive branch of government is rejecting it outright. But you know somewhere in America, a Congressional representative just had a light bulb flicker to life in that cloud over his/her head....
*please note, this is not an actual Congress member
- Kuwait’s parliament on Wednesday approved a bill that could force the government to buy all $23.3bn of consumer loans in the country, write off the interest and reschedule the payments, despite government opposition to the plan.
- The government plans to ask the emir, Sheikh Sabah al-Jaber al-Sabah, to reject the law, and the central bank has said that the bill includes legal and technical violations and cannot be applied, according to Kuna, the state newswire. Nonetheless, the Kuwaiti parliament, which has been locked in a long-standing conflict with the Sabah-dominated government, passed the bill on Wednesday to help indebted nationals. The passing of the bill ratchets up the heat in a drawn-out conflict between the executive and legislative branches in one of the Gulf’s few near-democracies.
- Thanks to the US invastion of Iraq in 2003 and soaring oil prices, Kuwait’s economy has surged for much of the last decade and spurred locals to go on a borrowing spree. While the government has run a series of healthy budget surpluses thanks to oil exports, the global recession has hurt many Kuwaitis, who borrowed to invest in wilting real estate and stock markets.
- This has led to a populist clamour for the government to bail out its indebted citizens, as it did on at least two previous occasions – after the Souk al-Manakh stock market crash in 1982 and following the Iraqi occupation in 1991.
- “It’s good news for Kuwaiti consumers, who are highly leveraged, and anything that helps them is good from a macro perspective. But as an economist it’s difficult to be positive on something like this,” a Kuwait-based economist said on Wednesday. “There’s a question of moral hazard, and how this will affect consumer behaviour in the future,” he added. (it's quite obvious how they will behave, they will keep repeating the behavior - see 1982, and 1991, and now you are in the same boat. This is the same behavior we now have trained our financial oligarchs to engage in over the past 15 years - and now are training the American people themselves to engage in.)
- The law – which stipulates that the government use KD8.5bn ($29.5bn) in state deposits at local banks to bail out all consumer loans – can be rejected by the government, but the assembly can overrule that with a two-thirds majority.
- If the bill is implemented the Kuwait Investment Authority, the country’s sovereign wealth fund, would incur a loss on returns of KD2.9bn ($9.9bn), Mustafa al-Shimali, the finance minister, told parliament last month. This would cost the government up to KD3.7bn ($12.8bn), he said.
Fact is sometimes stranger than fiction.
Let us pray no one on Congress reads the Financial Times.