Saturday, October 29, 2011

A Default By Any Other Name

Isn't it wonderful how our Ruling Class can persuade itself that something isn't really what it is, simply by calling it something else.

"EU Forges Greek Bond Deal," shouts the headline on Thursday's Wall Street Journal. Aha, one thinks, they've found a solution that doesn't involve Greece going into default. They reached a "deal."

[Thanks to for the image.]

But wait a minute. The second line reads: "Private Investors to Take 50% Haircut." What is a 50% haircut if not a default?

Let's see here. What is the definition of the word "default"? According to my handy Webster's New World College Dictionary, 4th ed., it is:

"1. failure to do something ... when required or expected; specif., (a) failure to pay money due...."

I see nothing in this definition implying that acquiescence by a defaultee changes the nature of the act of the defaulter. Let's be frank: at 50 cents on the euro, Greece is defaulting on its bonds, i.e. failing to pay money due.

Yet French President Sarkozy was ecstatic that the "drama of a Greek default" would be avoided, and that " 'the Greek debt agreement wouldn't be forced on holders of Greek bonds' ... that the leaders had reached agreement with private banks on a 'voluntary' [quotes in the original] 50% reduction of Greece's debt in the hands of private investors." (Original article.)

Angela Merkel was "very satisfied" with this arrangement. President Obama calls it "an important first step".

Apparently, the key word here is "voluntary." Oh, I see, so when a victim doesn't cry out as a knife pierces her skin, she is no longer being stabbed.

I love the logic. And the funny thing is that the market seems to be going along with the charade--for now, anyway.

My guess, however, is that the market will be quicker to wise up than our Ruling Class. More importantly, the Greek people seem not to be duped at all. A bookstore owner named George Patiniotis reacted this way:

"Who are they trying to fool?" (WSJ piece.)