March 27, 2012 – Greece: In Proper Perspective. What Happened When Countries Went Bankrupt in the Past?

In talking with a good number of people recently, it has become apparent that most are not aware that many countries went bankrupt in the recent past. Well, quite a few have. Going Bankrupt is not a new thing for countries.

Remember, the most dangerous sentence in the investing industry is “It’s different this time.” This applies equally to boom periods and busts so as we go through the following list do not deceive yourself and think that if Greece goes bankrupt the effect on the world economy will be any different.

From 1984 to 1998 Albania, Argentina, Brazil, Bulgaria, Costa Rica, Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, Panama, Peru, Philippines, Poland, Uruguay, Venezuela, and Vietnam went bankrupt. (Source: Wikipedia: “Sovereign Default”)

I have put in bold all countries that have larger economies than Greece. And before you say that these countries were relatively minor compared to today’s predicament, let me lay down my trump card.

Without looking at the answer below, can you name the G-8 country that went bankrupt in 1998?

If you were to try to find a difference between that 1998 G-8 bankruptcy and a potential Greek bankruptcy it would have to be that the 1998 bankruptcy was sudden and unexpected. Compare that to the raging debate and headlines about the Greek debt crisis over the last year. I cannot imagine that there is any serious, real investor of any size right now who does not know about Greece’s problems. I cannot imagine any investor who currently holds Greek bonds thinking that these bonds are secure.

This means that the 1998 bankruptcy had a larger effect on world economies. It also helped bring down a hedge fund called Long Term Capital Management (LTCM). This is particularly noteworthy since LTCM was established by two Nobel Prize winning economists. Imagine having your money managed by not one but two Laureates. I mean, these guys helped to write the textbooks and formulate the basis of the licensing exams that lesser beings like me had to pass to get into this business. And to then lose all of it because you did not think a G-8 nation would default? How embarrassing is that?

See page 66 of my book: In Short: Successful Investing During Turbulent Times to see what happened when Russia went bankrupt in 1998.

This article was prepared solely by Larry Short who is a registered representative of HollisWealth®, a division of Industrial Alliance Securities Inc. (iA Securities), a member of the Canadian Investor Protection Fund (CIPF) and the Investment Industry Regulatory Organization of Canada (IIROC).The views and opinions, including any recommendations, expressed in this article are those of Larry Short alone and not those of HollisWealth®