Why would the fiscally savvy Iron Bank offer so much debt to regime that does not have the tax revenues to remotely have the ability to pay its debts?

[honorable men]

Why would the fiscally savvy Iron Bank offer so much debt to regime that does not have the tax revenues to remotely have the ability to pay its debts? In the real world, a lot of leaders are aware that the USA looks like it will have trouble paying back all its debt anything soon, but the USA has no trouble getting credit. The reason is three fold. One is that US government can always print more money to pay its debt. Two is that because of steady rate of inflation built into our economy by the Federal Reserve to lubricate the financial system, no matter how big the debt gets, as long as we pay the interest eventually the debt will become worthless. Three most of those people who buy bonds are just acting as intermediaries. They are banks and funds that manage people and business savings. These people don't really want a lot of interest income, they just want to park their savings someplace safe until they need to spend it. So these intermediaries are basically borrowing the money at 0% interest and as long as the US government pays something more than 0% they make a profit. However none of these fundamentals are true in Westeros, yet the Iron Bank kept lending them money. And these savvy bankers are clearly aware that if one regime can pay them back with tax revenue any replacement they come up with can't either. How are they going to get paid? Westeros is feudal system. That means that ultimately all the land belongs to the king. If a king can prove that a particular noble was disloyal he can seize that noble's lands without the other nobles reacting. And that is why backing claimants is a viable strategy. A civil war is a great way to prove that a lot people were disloyal. The new king can repay the Iron Bank with the seized property of the losers.

[wia]

I think the Iron bank has been so graciously loaning money not only to the crown, but to many lords and ladies as well to have the actual power over Westeros. They are playing a game of thrones. And should they win, the return will be much greater than the interest on their loans.

[rotting sea cow]

The financial system in Planetos (even in the Free Cities) is not as advanced as in our world, so everything you describe is unknown for the Iron Bank. Nevertheless, there is a reason why people say that countries do not go bankrupt, they only default (i.e. cannot service the debts). The reason is that they have (as a given) a tax base and thus they can raise taxes to service the (renegotiated) debt. This situation is not dissimilar what is happening in Westeros now. Cersei ordered to stop the payments so she can pay for the new royal fleet, etc. The Iron Bank sees Westeros defaulting and thus they stop lending money and start to recall all outstanding debts (creating a liquidity crisis). Finally they go to support someone who they think is more reliable with the payments.

Anyway, I think the motivations of the Iron Bank are more than business only. First, I think they see a real threat that Westeros will split so the IT debts will be a lost. Second, is unclear the standing of Braavos regarding Dany, but the fall of the slavers cities has sent shockwaves through the trade network around Planetos and they might fear that the worst is yet to come.

Probably, they believe that only an unified Westeros under Stannis can ensure long term stability in a way that they get their money back and that global trade can flourish.

 

[Bernie Mac]

5 hours ago, honorable men said:

 but the USA has no trouble getting credit. The reason is three fold. One is that US government can always print more money to pay its debt. 

This is one of the dumbest statements I have ever read on this forum. Congratulations. Please tell me this is satire? 

5 hours ago, honorable men said:

Why would the fiscally savvy Iron Bank offer so much debt to regime that does not have the tax revenues to remotely have the ability to pay its debts? 

Except it does. Westeros, even after a year long civil war, had the funds to make their repayments to both the Iron Bank and the Faith. Cersei, in all her wisdom, decides she'd rather use that money to build a new navy so she does not have to count on the Reach lords loyal to her daughter-in-law. 

[SirArthur]

I am not really sure about the situation. Under Robert the Iron Bank lend large amounts to the realm, later Stannis and Jon Snow profit from the Iron Bank.

There are several factors at play. First, the Iron Bank supports House Baratheon. The other contributing factor is the Vale. The location with the closest proximity to Braavos. I strongly suspect (but this is just my fantasy) that regions close the Braavos (the North, the Vale) have contributions or guarantees towards the Iron Bank. 

Since the Lannister regime change, the Bank wants their money paid back while directly supporting Stannis. 

The ultimate crackpot fantasy here is a Stark - Braavos connection that guarantees the Iron Bank their money. The Starks are associated several times with Braavos and whatever is down that connection gives the ruling regimes (Baratheon) credibility in their eyes. 

 

[Blackfish Tully]

1 hour ago, Bernie Mac said:

 

Except it does. Westeros, even after a year long civil war, had the funds to make their repayments to both the Iron Bank and the Faith. Cersei, in all her wisdom, decides she'd rather use that money to build a new navy so she does not have to count on the Reach lords loyal to her daughter-in-law. 

Also the Lannisters and Tyrells are two of the richest Houses in Westeros and would be able to make the payments to the Iron Bank if they choose to but so far have refused to step up , not to mention the crazy expensive wedding , replacing the High Septon's crown and giving Joffrey and Jaimie Valyrian swords made from Ice , the  money is clearly there but Cersei just refuses to pay the Iron Bank which forces them to support Stannis .  

[Lluewhyn]

To answer the initial question, I'd say that:

1. Accounting systems are not nearly as sophisticated as the real world. Double-entry accounting was invented in the Renaissance era, which is where Braavos is just now flirting with. They don't have sophisticated auditing systems that allows them to look through review the Iron Thrones books and analyze debt/equity ratios, margins, Times Interest Earned, etc. They would probably have to look at a country, individual's history, maybe get some security.

2. Westeros HAS had sufficient revenues to be able to pay its debt so far. The problem is that Cersei chooses not to because she'd rather spend the money on other things.

3. Part of the problem is that Littlefinger has likely embezzled a good portion of the realm's funds.

[Fun Guy from Yuggoth]

Quote

The Iron Bank will have its due, it is said. Those who borrow from the Braavosi and fail to repay their debts oft have cause to rue such folly, for the Bank has been known to topple lords and princes and has also been rumored to send assassins against those it cannot remove (though this has never been conclusively proved).

 . . .

but the Iron Bank was richer and more powerful than all the rest combined. When princes defaulted on their debts to lesser banks, ruined bankers sold their wives and children into slavery and opened their own veins. When princes failed to repay the Iron Bank, new princes sprang up from nowhere and took their thrones.

5 hours ago, wia said:

They are playing a game of thrones. And should they win, the return will be much greater than the interest on their loans.

As others pointed out, I don't think the Iron Bank is primarily concerned with getting paid back, their intention is to give Kingdoms enough rope to hang themselves with, and when they default, install a King loyal to Braavos, and have the whole world as their debt slaves. 

 

1 hour ago, Lluewhyn said:

3. Part of the problem is that Littlefinger has likely embezzled a good portion of the realm's funds.

I also think he was working for the Iron Bank to bankrupt Westeros and destabilize it.

 

 

[John Suburbs]

1 hour ago, Lluewhyn said:

3. Part of the problem is that Littlefinger has likely embezzled a good portion of the realm's funds.

Lol, and deposited them into his own account at the Iron Bank. 

 

8 hours ago, honorable men said:

snip

To add to what others have said about Cersei choosing to build a fleet rather than service the debt, there is also the fact that the Iron Bank is not even the crown's primary lender. About half of the six million gold pieces is owed to House Lannister, while the rest is divvied up between the IB, the Tyrells, the Faith and several Tyroshi trading cartels. So the IB's loans are large, and would certainly warrant regime change if not paid, but they are not likely to break the bank if the crown refused to honor them.

[argonak]

36 minutes ago, John Suburbs said:

Lol, and deposited them into his own account at the Iron Bank. 

 

To add to what others have said about Cersei choosing to build a fleet rather than service the debt, there is also the fact that the Iron Bank is not even the crown's primary lender. About half of the six million gold pieces is owed to House Lannister, while the rest is divvied up between the IB, the Tyrells, the Faith and several Tyroshi trading cartels. So the IB's loans are large, and would certainly warrant regime change if not paid, but they are not likely to break the bank if the crown refused to honor them.

Yeah its quite crazy how willing Tywin was to loan money to the Iron Throne.  What was he expecting out of that?  Joffrey, for all the ways that matter, was a Baratheon.  Even if Tywin succeeded wtih all his hands and became Hand of the King and Regent, the best he could hope for was repayment of the debt.  We never see him itching for new lands or revenues, (like maybe becoming lord of the riverlands in addition to the westerlands), so what was his plan supposed to be?

[SeanF]

If their loans can't be repaid, then presumably they'll take land and trading concessions instead.

But, they intend to finance the ultimate winner of the civil war, who would repay them from the confiscated assets of opponents.

[Ser Maverick]

Either Littlefinger somehow goaded them into it or they’re conspiring with them. I lean towards the former because he also managed to get a more sizable loan from Tywin Lannister: a man who established his reputation by killing the families that wouldn’t pay their debts.

If my interpretation is accurate, then Littlefinger likely planned for Westeros to be in a state of perpetual war, where the power that takes Kings Landing inherits a debt they can’t hope to pay off and risks the Iron Bank financing one of their competitors. 

[Bernie Mac]

1 hour ago, argonak said:

Yeah its quite crazy how willing Tywin was to loan money to the Iron Throne.  What was he expecting out of that?

The same as any Lord who lent money to a monarch in the middle ages, interest and good favor from the King. 

Kings, despite being rich in capital, were often lacking in fluid funds, they frequently borrowed. 

 

Quote

 

  Joffrey, for all the ways that matter, was a Baratheon.  Even if Tywin succeeded wtih all his hands and became Hand of the King and Regent, the best he could hope for was repayment of the debt. 

And interest and to be top of the king's good graces, which is pretty much what all vassals want. 

Quote

 

We never see him itching for new lands or revenues, (like maybe becoming lord of the riverlands in addition to the westerlands), so what was his plan supposed to be?

Well first of all you are looking at it too large. No Lord would be expecting a prize that big, it would be many, many much smaller concessions or minor royal/realm positions for Tywin and his vassals. Over the course of 15 years ( Robert's rule) they would have greatly benefited Tywin while he still has the regular loan repayments to collect. 

 

 

[White Ravens]

I love these stories for the dragons and the blood magic, the weirwoods and the wargs but it's sometimes too hard to suspend my disbelief when I see these huge inconsistencies in how finances work in Westeros!  

[Angel Eyes]

4 hours ago, SirArthur said:

I am not really sure about the situation. Under Robert the Iron Bank lend large amounts to the realm, later Stannis and Jon Snow profit from the Iron Bank.

There are several factors at play. First, the Iron Bank supports House Baratheon. The other contributing factor is the Vale. The location with the closest proximity to Braavos. I strongly suspect (but this is just my fantasy) that regions close the Braavos (the North, the Vale) have contributions or guarantees towards the Iron Bank. 

Since the Lannister regime change, the Bank wants their money paid back while directly supporting Stannis. 

The ultimate crackpot fantasy here is a Stark - Braavos connection that guarantees the Iron Bank their money. The Starks are associated several times with Braavos and whatever is down that connection gives the ruling regimes (Baratheon) credibility in their eyes. 

 

It’s within the Bank’s interest to support the Night’s Watch. Wights don’t pay money.

[SirArthur]

18 minutes ago, Angel Eyes said:

It’s within the Bank’s interest to support the Night’s Watch. Wights don’t pay money.

Is it ?

Because, in this absolute scenario, from a mathematical point of view, it is all about the chances of the NW.

If Westeros owes 10k to the Iron Bank and the NW get 1k, then the IB looses all with x% and nothing with a probability of 1-x%. And this is even before a regular fail to repay the money.

So the chance to return the 10k+1k must be acceptable high, else the investement would be lost and there would be no reason to support the NW.  

Of course there can be other reasons for the support that make the investement into the NW negligeable. But that has nothing to do with pure bank interest into Westeros. As I said, it all depends on the chances.

[Angel Eyes]

Just now, SirArthur said:

Is it ?

Because, in this absolute scenario, from a mathematical point of view, it is all about the chances of the NW.

If Westeros owes 10k to the Iron Bank and the NW get 1k, then the IB looses all with x% and nothing with a probability of 1-x%. And this is even before a regular fail to repay the money.

So the chance to return the 10k+1k must be acceptable high, else the investement would be lost and there would be no reason to support the NW.  

If the wights kill everybody, the Iron Bank doesn’t get anything because there isn’t anyone to pay them.

[SirArthur]

1 minute ago, Angel Eyes said:

If the wights kill everybody, the Iron Bank doesn’t get anything because there isn’t anyone to pay them.

If the Iron Bank uses math, it could come to the conclusion that it could save the loan to the NW. 

[Moiraine Sedai]

Honorable men this is an ungodly complex topic but I will try to answer one question at a time.  

1.  Greed.  Not too long ago in the US, many lenders started lending money to people who have little chance of paying.  High risk loans to people who want to buy houses beyond their incomes can support.  These loans were later sold to other people.  The whole system eventually collapsed and the economy suffered.

2.  Fiscal Irresponsibility.  Robert was a generous man.  I believe he lowered taxes but not the spending.  His government was running a deficit for years.  Tywin and Petyr kept the government afloat.  Tax cuts without real spending cuts.  What our presidents have been doing.  Aerys and his council had high taxes and reasonable spending.  The Aerys government was running a surplus and the treasury grew. The North feeling overtaxed was very likely one of the reasons why Rickard wanted  to remove the Targaryens.  Do you believe the high lords gave their small folk a tax decrease after Robert took office?  I don't think so.  They pocketed the difference.  Those who could use it most benefited the least.

3.  The Iron Bank is in the business of lending.  That is what they do.  Who else will borrow large sums?  Slavery in Essos is a mature business.  The three slavery cities of the bay have little need to borrow capital because they are stagnant.  They train slaves.  It is a closed economy.  I would say they are depositors.  The IB need borrowers to grow interests to pay those depositors.

4.  Government bonds are attractive because the US government have never defaulted.  China has been accused of lending money to countries that cannot pay.  The terms allows the lender to temporarily take control of lands subject to the terms in case of default.  Both sides benefit because the borrowing nation's need capital to improve their infrastructure.

[John Suburbs]

4 hours ago, argonak said:

Yeah its quite crazy how willing Tywin was to loan money to the Iron Throne.  What was he expecting out of that?  Joffrey, for all the ways that matter, was a Baratheon.  Even if Tywin succeeded wtih all his hands and became Hand of the King and Regent, the best he could hope for was repayment of the debt.  We never see him itching for new lands or revenues, (like maybe becoming lord of the riverlands in addition to the westerlands), so what was his plan supposed to be?

I think his main goal at that point was stability. As long as the realm had enough coin to support a vibrant economy there was little worry of a serious counter-rebellion. Yes, he would also want repayment of the debt, plus interest.

Ultimately, I believe his plan was to produce a successive line of Lannisters who would marry and intermarry with the Iron Throne and other great houses, elevating House Lannister to first among equals in the realm, displacing House Tyrell in that role.