As IF Times

link Fitch Says 50% Greek Bond Haircut Would Be Default Event – Businessweek.

After months of hand-wringing and warnings of dire consequences, an 11th hour deal was inked to help Greece avoid an unknown but certainly ugly financial scenario.  The E.U., headed principally by Germany, agreed on a rescue plan to halt the crisis.   Angela Merkel of Germany is being hailed as a triumphant hero for solving the debt impasse.  The collective action of stock markets worldwide was to explode higher in a frenzied stampede of buying as the boiling crisis appears to have been averted.

But was it?  It’s not as if someone stepped in to magically make the fiscal problems of Greece go away.  The agreement to support Greece’s ailing government and financial system was for all intents and purposes a default event.  A default event for those not versed in financial lingo is the arid description of someone not paying their debts.   According to articles such as the one linked, creditors of Greece’s debt holdings will take a 50% write off of their face value.

Imagine if someone owed you $1000 and after a series of unpaid interest events, he came to you and said he’d pay you $500…maybe.  I’m not sure many would be doing cartwheels and flips on that news.  In the case of Greece, the many banks, institutions and investors who are owed money on those bonds have been cajoled to write off their investment by half.  So, these investors are out of luck on their bad investment.  By extension, shareholders of these banks and institutions get haircuts on their investments.  Since some of the holders are governments, the taxpayers wind up subsidizing the loss.

But it’s not only greedy banks and investors who suffer as may be portrayed by the vapid media.

Some of the parties getting financial haircuts are Greek pension plans  themselves since they are big owners of government debt obligations.  In essence, the pool of money represented by those bonds available for paying future retirees etc will have shrunk by a half.  It’s as if you removed wood from the roof of a house to block up the leak in the basement during a heavy rain.

Whether in the case of Greece, or that person who borrowed $1000 from you and now only wants to pay back half, what is the likelihood that someone else will lend money to them based on this default record? As likely as flying pigs, unless of course a usurious rate of interest was applied… which ironically makes the likelihood for repayment more unlikely.

Greece is not alone with their fiscal problems.  Governments paying out much more than they take in is a common affliction to many nation-states.  What they faced is an issue that many other nations such as Italy and Portugal are grappling with as well.  Of course the country that faces this problem on the grandest scale is the United States.   If the process of lending money to nations gets iffier and iffier with many taking the route of Greece by defaulting, the cost of borrowing any money skyrockets.  When that happens, nobody gets loans because no one gets paid back.  I’m not so sure people will be cartwheeling then.

Personally, I feel that letting debtors off the hook is too easy.  If there are no real consequences, what’s to change the behaviour?  The classic method to enforce repayment of debt as practiced by such as the Mafia, was to break various body parts such as legs in order to enforce their creditor contracts.  Of course this only works on a small scale and the staffing problems associated with it would be difficult in today’s labor climate.   The other part was to assume ownership of whatever asset the debtor may have as collateral such as houses, cars or businesses.

Imagine if we applied this on the international scale.  Entire stretches of scenic beaches and resorts could be taken over as compensation for non payment of debt.  The entire face of a nation’s culture could conceivably change.  At the moment, the Germans and Chinese are rumored to be large holders of foreign debt.  What if they took over all the resort areas of Greece and changed the complexion of their culture?  Souvlaki Chan’s Taverna.  Or Octoberfest with Uzo instead of beer.  Hmm…

link Freed prisoners who return to te… JPost – Diplomacy & Politics.

I’m sure they’re all shaking in their sandals over the warning by Netanyahu to avoid causing trouble upon their recent release from Israeli prison.  As has been reported in the news, Israel has exchanged 1,027 Palestinian prisoners for the return of just 1 Israeli soldier, Gilad Schalit. Talk about a one sided deal! 

Two obvious things pop out here.  First, the stark difference between how both sides of  the Israeli/Palestinian struggle view their citizens are displayed by this action.  Whereas the Israelis respect and honor the sanctity of every human life by striking such a lopsided bargain for even one soldier’s release, the other side cavalierly sends their young boys off to suicide missions as if they were drink coasters to be used as needed.  From the perspective of a westerner, it seems as if the preservation and sanctity of human life is what determines a society’s standing in the civilization scale.   The only instance that I know of in the animal world where creatures willingly commit suicide are lemmings.  That is certainly the exception.  Even rodents and insects try to nurture life.

Ironically for the released prisoners, it may only dawn upon them many days after their release that they were probably better off in Israeli prisons.  The food was likely better than what they were used to; it arrived on a regular basis; they were housed with buddies and most importantly, they were excused from having to go out on rock throwing, suicide missions.  They may all have even gained a pound or two.  For the Israelis’ part, they may have been happy to offload the expense of housing , feeding and clothing the 1,027 prisoners.  Even bread and water costs money. 

The second obvious thing that jumps out from this exchange is that it must be hugely insulting for each of the Palestinian prisoners to be exchanged by the train car load for just one measly Israeli.  Have they no sense of pride?  Using a sports analogy, it’s as if Tom Brady of the New England Patriots were traded away for the entire NFL!  They couldn’t have been of too much use to their own society since they were obviously expendable.  Imagine when they come back home to their families. 

“Oh, Ahmed, it’s you.  Yeah, hey listen, this is a little uncomfortable, but we didn’t expect you to come back.  We’ve replaced you with a coat rack.” 

In any event, there is no dis-incentive  on the part of these released prisoners to resume troublesome activities notwithstanding Netanyahu’s warnings.  What’s the worst that can happen?