Library of Mistakes
EP 35: Lending To The Borrower From Hell (with Mauricio Drelichman)
Mar 6, 2025
Mauricio Drelichman, co-author of 'Lending to the Borrower from Hell,' delves into the intriguing financial history of King Philip II of Spain. He reveals how Renaissance bankers innovated lending practices despite dealing with a defaulting monarch. The conversation highlights the impact of Spain's silver trade on economics and military spending, and discusses how historical lending practices inform modern finance. Drelichman also explores the complex relationship between government debt and political power, shedding light on defaults' theological justifications.
43:58
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Quick takeaways
- Lending to Philip II, despite multiple defaults, revealed that long-term relationships allowed lenders to profit significantly over generations.
- The introduction of innovative financial instruments like Asientos and Juros showcased the evolution of sovereign debt management and risk mitigation strategies.
Deep dives
Understanding Sovereign Debt Defaults
The discussion revolves around the complexities of lending to Philip II of Spain, who defaulted on debts multiple times yet remained a profitable venture for lenders. Despite facing defaults in 1557, 1560, 1575, and 1596, lenders primarily benefited from valuable returns, leading to the conclusion that lending to Philip was a sound business decision. A critical aspect is that lenders, such as the Genoese bankers, conducted long-term relationships that averaged out the risks over generations, resulting in consistent net gains despite individual loan defaults. The realization of this financial strategy highlights the inherent contradictions in the relationship between high-profile borrowers and their lenders.
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