Governments in Greece, Portugal, the United States and elsewhere are borrowing, and often wasting, money at a reckless pace. Why do banks and financial markets cooperate? Because there’s something in it for them.
They keep a little slice of the public money being borrowed or wasted. Only a sliver. But the more that is borrowed, the larger the sliver becomes.
This is the Sliver Strategy, and it underlies the ways many of the Western world’s wealthy institutions relate to government.
Here’s how the Sliver Strategy works. If government spends a moderate sum and an interest group gets a large share, this will be noticed and denounced. If government spends a gigantic amount and the interest group gets a sliver, this won’t be noticed. But a sliver of a gigantic amount may be more than a large share of a moderate sum.
Many sovereign bonds and similar securities, for instance, are accompanied by credit-default swaps, which may amount to around half a percent of the amount borrowed. That’s just a sliver. But the more borrowed, the larger the sliver.