There is only one ethically defensible choice for Greece: default now. Before you flame me with emails about the "responsibilities of debtors," please read the entire entry.

Let's look at credit (offered by lenders) and debt (sold to borrowers) from the point of view of predation.

Would you borrow $1 billion if it was offered to you at zero interest, with no collateral required? I would, without hesitation, and I would buy various assets which offered a reasonable return above zero with the "free money," because the lender has no recourse if my investments fail to return the capital.

Who would be dumb enough to make such a loan? The Federal Reserve, of course, and they do so only to their special buddies, the "too big to fail" banks as a way of diverting the national income to recapitalize the banks without directly transferring taxpayer funds.

What does it take for a transaction to become predatory?

1. The lender (if they had sufficient leverage) could change the terms after the fact, for example, demanding more collateral. This would be predatory because the terms of the loan were "too good to be true" and were designed to fail--i.e. a lead-in to a carefully planned predation.

2. The borrower misrepresented his financial circumstance, i.e. committed fraud, which is a type of predation on unwary lenders.

But there is a quantitative difference between the borrower seeking to defraud an unwary lender and a lender planning a predatory loan:

1. The lender is in effect marketing the debt. If a potential borrower declines a loan, life goes on. If a lender doesn't sell loans, it dies. Therefore the incentives to push "too good to be true" or otherwise misrepresented loans are asymmetrically on the lender side.

2. The lender is an institution that is built upon risk management and risk appraisal. The borrower is not, and thus the skills of assessing (and thus of pawning off) risk are asymmetrically on the lender side.

There is an unsavory analogy to lenders offering under-collateralized, low-interest loans with "gotchas" built into the terms: Pushing these types of loans at interest rates which do not reflect prudent risk management is akin to offering an inexperienced young maiden a large sugary drink that is heavily spiked with a tasteless alcohol, with predatory designs.

So when the maiden wakes up groggily the next morning sans clothing in a strange bed, is it really fair to say, tsk, tsk, she should have known better? Doesn't this ethical symmetry miss the reality that the risks of predation were masked and asymmetrical by design?

The banks that lent vast sums to Greece were in essence offering "too good to be true" loans at rates of interest that did not reflect prudent risk management. Anyone who glanced at Greece's history of defaults might have wondered if Greek rates should have been almost as low as those in Germany.

Was the "collateral" any sounder than that offered in the many previous instances of default?

We're left with only two possible conclusions:

1. The big banks which lent stupendous sums of money to Greece at low rates of interest were hapless incompetents when it came to risk assessment and management, or

2. The loans were predatory from the start.

#1 is patently absurd, and so we are left with #2: the banks designed and offered these loans with predatory intent. Now the banks are offering their political lackeys a menu of predation to choose from:

1. Deliver the wealth of the Greek nation directly to the banks via transfer of national assets

2. Deliver the wealth of the nation over time via "austerity" programs that in essence divert the surplus national income to the predatory banks

3. Increase taxes on the "core" Euroland nations' taxpayers to fund a "bailout" of Greece that is in essence a direct transfer of those taxpayers' wealth to the big predatory banks; the "bailout" is just a pass-through to the banks.

If you think this through, there is only one ethical thing for the maiden to do: toss the spiked sugary drink in the face of the predator and deliver a swift, hard kick between his legs "where it counts."

Greece should respond to this planned predation with complete and total default: not a "haircut" or "extended terms," a complete and total refusal to pay any of the debt.

We are constantly warned that the resulting collapse of the "too big to fail" banks would trigger a global implosion. That is false; life would go on after the predators declared bankruptcy and were liquidated. What the predators fear most is an awareness that any disruption in normal life would be brief and relatively painless compared to the vast suffering imposed to render them their pound of flesh.

The banks are in effect imposing Droit du seigneur--"lords rights"-- on Europe. Someone needs to take the predators down, and it might as well be Greece.

I have covered this before in regards to Ireland: Ireland, Please Do the World a Favor and Default (November 29, 2010).


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