Five Things You Need to Know: Greece Debt Rollover, Why Semantics Matter

By Kevin Depew  JUN 21, 2011 10:45 AM

Also, 5,000 years of debt, the fear of failure, and bizarre Internet predictions from 1995.


1. Greece Debt Rollover: Why Semantics Matter

Good news. Things are looking up, according to the world. "Hopes for Greek Deal Bolster Risk Assets," claims the Financial Times. The German Dax Index rallied nearly 1 percent. Japan's Nikkei, Hong Kong's Hang Seng Index and even Greece's Athens Stock Exchange rallied. Athens was up more than 3 percent.

The good news is weird and somewhat mysterious, so let me try to explain. First, Luxembourg prime minister Jean-Claude Juncker, who yesterday hosted a meeting of eurozone officials, assured everyone that Greece's prime minister, George Papanadreou, had assured him that everything possible would be done to meet conditions for a eurozone rescue package. That is understandably weird because Greece's prime minister faces a vote of confidence in the next few hours that itself will determine whether any assurances from Papandreou are worth even considering.

Even weirder, mysterious even, are the semantics of Greece's debt situation. The credit rating agency Fitch Ratings said this morning that even a voluntary rollover of Greece's sovereign debt in any formal rescue package would be enough to cut the country's credit rating and trigger a "default event." That seems pretty clear, but as usual, with Fitch and the rest of the credit rating agencies, it is anything but. Standard & Poor’s cut Greece’s rating to CCC from B last week, and warned that any attempt to restructure the country’s debt would be considered a default.

So that Catch-22 leaves an obvious question: If any rollover of Greek debt, voluntary or not, is considered a credit event or default, then why roll over the debt at all? The answer is that Greece may choose to pursue an "informal" private-sector rollover and debt exchange versus a formal arrangement. Indeed Juncker this morning was clear that it's true, the answer may be semantic, but as we have seen during the recent US debt crisis, in credit markets semantics matter. In 2008, remember, semantics saved US banks when they were able to turn their mortgages into "held for investment" versus "held for sale." Semantics. In credit markets, a faith-based system of debt and exchange, semantics is indeed the only thing that matters.

2. Debt: The First 5,000 Years

On July 19 Debt: The First 5,000 Years, a fascinating new book by David Graeber will be released. Graeber argues that given global concerns over both sovereign and consumer debt, it's time to stop and think for a moment about what we owe and to whom we owe it. It's time to re-think the morality of debt and to question fundamentally what it is we are doing with our present credit system.

This is one of his conclusions at the end of the book that is not only apt from a Socionomics standpoint but worth considering by all:

It seems to me that we are long overdue for some kind of Biblical-style Jubilee: one that would affect both international debt and consumer debt. It would be salutary not just because it would relieve so much genuine human suffering, but also because it would be our way of reminding ourselves that money is not ineffable, that paying one's debts is not the essence of morality, that all these things are human arrangements and that if democracy is to mean anything, it is the ability to all to agree to arrange things in a different way.

Think about the implications of that.

3. Fear of Failure?

One of the interesting psychological aspects of the eurozone hysteria over the past week is how it forces a strange juxtaposition of two simultaneous and competing sentiments:

1) On the one hand, there seems to be widespread agreement that the eurozone is a fundamentally flawed and broken system.
2) On the other hand, there seems to be widespread agreement that if the eurozone (or even Greece alone) fails, all hell will break loose. We have to avoid default!

Those two sentiments don't make sense side-by-side. 4. The Next Asset Bubble Is Far, Far Away

"It’s been three years since the collapse of the last economic bubble, so it’s probably time to start worrying about the next one," reasons Jonah Lehrer at Wired's The Frontal Cortex blog. The rest of the post is very good, worth reading, and focuses on how science and brain researchers are looking for ways to understand why we create and/or participate in asset bubbles. What drives us to recklessly speculate? But what I want to focus on is that first sentence. Read it again: "It’s been three years since the collapse of the last economic bubble, so it’s probably time to start worrying about the next one." That sentence speaks volumes about social mood. Most of us would read Lehrer's piece today and glide right over that sentence as a simple statement of fact -- it's been three years since the last asset bubble, time to start worrying about the next one. Oh, but this was not always so! It is doubtful that statement would have been written (and passed over by the majority of readers without remark) in the 1990s, or even as recently as 2004.

Of course, Socionomics informs us of the real reason asset bubbles occur, and how human behavior, the desire to speculate, or even its opposite, the trend toward risk aversion we are seeing now, is driven by unconscious herding impulses that are continuously rising and falling in wave patterns that can be modeled. The irony is that whenever a statement in the media blithely assuming the formation of asset bubbles appears, it typically means they are far, far away. After all, the reason we are so concerned about asset bubbles right now is precisely because we are herding around risk aversion and the desire to not create them. Understanding this from the Socionomics viewpoint is helpful and informative in a very applicable way.

5. Newsweek Predicts: "What the Internet hucksters won't tell you."

Making the viral rounds again these days (it seems this article resurfaces every so often) is a 1995 piece about the Internet by Clifford Stoll. What's so great about it? Well, nuggets like this, for one thing:

The truth is no online database will replace your daily newspaper, no CD-ROM can take the place of a competent teacher and no computer network will change the way government works.

And this:

How about electronic publishing? Try reading a book on disc. At best, it's an unpleasant chore: the myopic glow of a clunky computer replaces the friendly pages of a book. And you can't tote that laptop to the beach. Yet Nicholas Negroponte, director of the MIT Media Lab, predicts that we'll soon buy books and newspapers straight over the Internet. Uh, sure.

Given the benefit of 15 full years of hindsight, it's an amusing string of predictions. Online databases are, in fact, replacing newspapers, a variety of online teaching aids are effectively replacing competent teachers in some places and computer networks have forever changed the way government works -- in Washington DC, Iran, Egypt, to name but a few -- and changing government in very profound if unpredictable ways. I am even as I type this charging a Nook tablet reader here next to my desk, a tablet device I will later use to read the Wall Street Journal and a book by William Gibson I downloaded last week.

Of course, passing around this article and bringing it up here is not intended, at least not explicitly intended, to point a finger at Mr. Stoll and mock the audacity of his pessimism about the Internet... even if he did use the phrase "Internet hucksters" which, to be fair, of whom there were many, especially during the late 1990s and early 2000s. The more remarkable thing about the piece is that it illustrates how extraordinarily difficult it is to make predictions about things 15 years into the future. Even more to the point: It is almost always fruitless to take a pessimistic slant against technology and how it will impact our lives.

Oh, and Mr. Stoll didn't miss on all his predictions. This one will probably carry an air of familiarity about it:

What's missing from this electronic wonderland? Human contact. Discount the fawning techno-burble about virtual communities. Computers and networks isolate us from one another. A network chat line is a limp substitute for meeting friends over coffee. No interactive multimedia display comes close to the excitement of a live concert. And who'd prefer cybersex to the real thing? While the Internet beckons brightly, seductively flashing an icon of knowledge-as-power, this nonplace lures us to surrender our time on Earth. A poor substitute it is, this virtual reality where frustration is legion and where—in the holy names of Education and Progress—important aspects of human interactions are relentlessly devalued.

That sentiment is almost prophetic. And I'm not so sure he's entirely wrong about the fact many of us may feel increasingly isolated by the  technology we use, our iPads and iPods and social networks. But I am not so much pessimistic about this as intrigued by it. It is likely that this is merely an obstacle for technology to overcome, not an obstacle fundamental to its existence as Stoll and many others even today suggest. I won't dare to make a prediction about what that obstacle may entail 15 years into the future.

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