Charles Raw

‘When they lend to the developing world, as we shall see, bankers often have only a remote prospect of seeing their money back.’ writes Anthony Sampson. He then chronicles one or two of the more spectacular banking defaults of the past, starting with a brief account of how England in the 14th century, then a ‘wild developing country’, welshed on its debts to Italian bankers. He proceeds rapidly to the troubles the London merchant bank Barings had, in the last century, with the Argentine and the State of Mississippi, the latter’s refusal to pay its debts leading to the formation of the Council of Foreign Bondholders, which is still active today. Later, and in more detail, Sampson examines recent real or potential defaulters – Egypt, Indonesia, Zaire, Iran, Poland – and builds the picture of an international commercial banking system in peril, with syndicated loans being cobbled together to pay the interest on the last loan – which in turn had been raised to pay the interest on the one before last. How, I wondered at the outset, can the commercial bankers be so foolish as to lend if there is a good chance they will not get their money back? The answer emerges that it is Sampson who believes they might not get their money back – not the bankers. Do the bankers then delude themselves? If so, why? The answer to the latter question is threefold.