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


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.
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