Guest Post: Greece, Please Do The Right Thing: Default Now

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Greece, Please Do The Right Thing: Default Now

The big banks' loans to Greece were predatory by design.

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.

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LRC Fan's picture

Greece, please do the right thing:  BTFD

Mountainview's picture

And if others try to decide for you... remember your fathers...

Bananamerican's picture

"a swift hard kick" to banker nuts

...your lips to Zeus' ears

surfwon's picture

I want to see Greece take the next round of money and then default............ stick it to the stiff suits

oogs66's picture

only if they don't have to post collateral to get the next round

Xibalba's picture

and the EUR is rallying......what a pedophile of a market. 

Djirk's picture

ummm worldest biggest economy (EU zone) with relatively higher rates and debts backed by the ECB...rally on

kaiserhoff's picture

+++  Hell yes.  Party on dudes.

wandstrasse's picture

Hey, the world is designed by and for the bankers. They designed the 'maid' = population/peasantry, too. Therefore the 'maid' will NEVER kick in ANYBODY's legs.

stopthenewworldorder's picture

what is the word for cojones in greek?

Caravaggio's picture

"..Greece should respond to this planned predation with complete and total default.."

I agree. Most probably exactly this will happen.

fasTTcar's picture

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.


Wrong. #3 is that any lender knew that they would be bailed out by the EU or the IMF.

AnimaPersona's picture

Agreed, Ala` Fannie and Freddie...

Franken_Stein's picture


Look, even I as a German think the banks should take losses with their investments gone sour.

But there should also be a punishment of those tax-evading Greeks that live off the German taxpayer like a parasite.


Why does the German (and French, Dutch, British etc.) taxpayer have to finance fat and bloated Greek pension schemes and make up for Greek budget deficits due to the non-payment of due taxes by Greeks themselves ?


That is NOT fair.

That is theft.


Caravaggio's picture

Why does the German (and French British, etc.) taxpayer have to finance..

Ask your (French, Brtitsh, etc.) banks.

wandstrasse's picture

ich hab nicht brutal viel in der Birne, aber das hab ich kapiert: Denkblase Banken: Lecker Kredit vergeb, Zinsen krieg! Aber an wen Kredit vergeb? Firmas und Privatleute keine mehr woll!! Ahh fein! STAATEN Kredite geb! Staaten IMMER und VIEL Kredite nehm! Und - im Fall von Griechenland - Frührentnern und Zugführern hinterherschmeiß! Und Politiker mir versprech, dass auch die Urururenkel von Bevölkerung heute die Zinsen zahl!

oogs66's picture

why are the German people paying for anything?  they should have let Greece go the first time and then dealt with the German banks directly.  and for a country that have left the landesbanks around for so long, its hard to point fingers.   the landesbanks make the caja's look like smart money

breezer1's picture

who helped greece cook the books to even join the euro ? were they the same bankers who helped hide the debt so they could borrow more?

to the chosen few it is not even money just ledger entries. the big trick is not letting everyone know until they own everything.  

Mediocritas's picture

Greeks are parasites living off German taxpayers because Greeks don't pay their taxes?

Well, you see, all that money Greeks don't pay as taxation stays in the private sector where it goes to buy a whole lot of goods and services from German corporations, corporations that, I might add, have done a sterling job of out-competing local Greek rivals due to superior / more aggressive management. The same is true across the eurozone; see you later local supermarket, here comes another Lidl.

So now, after decades of having benefited greatly from open markets & the euro and a continual stream of cash flowing inwards towards Germany, Germans complain about parasitism?

Consider the UNION component of EU. If California does really well and sucks money out of other states, then those states run into economic trouble, should California start demanding its pound of flesh and expand its borders? No, the Federal government should intervene to prevent civil war because the USA is a union.

So if you want to label Greece a parasitic nation, then you have to be prepared to do the same for every other nation in the eurozone. If that's the case, then you should demand that Germany leaves the EU immediately.

nicxios's picture

I think you mistake the parasite for the victim.

Jack Burton's picture

 Banks hold the power of government via their purchases of politicians world wide. As long as politicians work for the banks, governments are not going to say NO to the bankers deals. It was obvious after the 2008 crash that all stops were pulled out to do bank rescues. The only nation to stand up to the banks was Iceland, and they succeeded only because they were small enough to unite in a local action against their government. Big nations are too fragmented to come together and are thus easy prey.

The fact is that bankers and politicians are really two sides of the same coin. Heads banks win, tails banks win.

The banks should burn for their risk management failures, but as the post says, this may have been planned preditory action from the very start.

LeBalance's picture

Quite!  Really Charles must stop with the illusion based writing.

The "people's side" ?  Who calls the shots for the "people's side?"


Oh the hilarity.  And some fool commentator has the ////// to paint it otherwise.


Urban Redneck's picture

There is one key difference between the politicians and the bankers.  The national politicians are elected by citizens, whereas the the banking executives are appointed by the banks Board of Directors.  The only way to change the system is to replace the politicians with persons willing to reign in the power of the banks.  A bank's Board of Directors will never appoint Joe the plumber or even a Tyler Durden to run a bank.

DeadFred's picture

The premise is backed by the fact the banks kept the loans when they could have offloaded them. The conclusion is they had motives other than interest payback. The question is if they were far sighted enough to plan on shopping at the Greece garage sale do you think they weren't far sighted enough to own the political decision makers? This plan lives or dies based on whether the banks can keep the Greek people corralled. My bet is that bread, circus, and water canon wins but I hope to be wrong.

THE DORK OF CORK's picture

I am not so sure if Hellas is a virgin but I can tell you that trollop Hibernia will suck cock at a moments notice - she has no respect for herself, even in public.

disabledvet's picture

you forgot the trademarks.  that'll cost ya'....145...."drachminmarks."

Milestones's picture

Never mind Greece-What the hell is preventing the USA from doing exactly the same thing NOW?

All Congress AND the American public need to do is to tell the banks F--- You on the raising the DEBT LIMIT, which has already been done by Congress yesterday. The USA should simply Default!

If nothing else it should stop Afgan and Iraq from continuing mach snell!!   Milestones

Gimp's picture

At the risk of being schooled by one of my fellow ZHers, Iceland Defaulted and they seem to be doing just fine...anyone disagree?

disabledvet's picture

"the salmon are highly displeased."

dugorama's picture

"Doing just fine" as long as they stay home and don't import anything.  And since they only produce wool and fish, that's tough to do.  The only Icelanders who can now travel are those who were clever enough to move money abroad before the default.  And then they're burning precious FX on travel.

FreedomGuy's picture

Let me post a counterpoint just to stimulate thinking on the other side. Greece runs a deficit just like most socialized nations including the U.S. It buys more services and transfers more money than it actually collects in revenue. Therefore, Greece runs neverending deficits which must be financed with borrowed money (just like the U.S.).

The "government" which claims to be such geniuses that it knows how many parts per million of a thousand different chemical agents are safe, knows how to regulate BANKS to keep them honest, knows how to regulate everything in the world to keep everybody in the world honest...gets fooled? This is theoretically impossible in the centrally planned state run by government geniuses. Greece has long been only two steps from being a USSR on the Mediterranean. They certainly have the centralized geniuses to prevent being fooled.

Let me posit that these geniuses took out loans which start with "I promise to pay..." which is an act of honor upon which all commerce and organized life depends. These loans become part of your and my retirement portfolios and our national health. Default is both breaking a promise and stiffing the lender. Unless the Greek government can show in a court of law that they were truly FOOLED which would make them fools, then they have to pay. Without that one of many dozens of nations that spend more than it collects must pay the price.

On the other side of the ledger, I think if you loaned Greece money with their history, you're an idiot. You will have to take a haircut because the childish socialist children of Greece (with more to follow) will NOT pay what they owe. They have no intention of doing so.

If you are a good citizen of Germany or anywhere else with a central bank that loaned Greece money then you are a victim because your government indebted YOU to help Greece with stupid loans. You ought to refuse the debt. This is the real crime.

BTW, here in the U.S. as we load the next 27 generations with unsustainable debt WE should refuse to pay, too. The Fed and the Congress are creating debt at will with no agreement from the actual state credit card holders...the subjects of the United States of America.

This isn't all about evil "banksters" but irresponsibility, stupidity and dishonesty at all levels of government, as well. The banksters at worst are the mafia financiers of the bad gambling habits of government. On a bigger level it is also about the never ending failures of the collectivist states that set up this scenario. Go a little deeper. It's not all about evil cabals behind closed doors. It's about what is right in front of your face.

oogs66's picture

don't forget our government is lending money to greece too via the IMF.  we aren't satisfied with our own fiscal irresponsibility, we do some on the side too

FreedomGuy's picture

I fully agree. We can get robbed internationally, as well. Where did I sign the documents to spend MY money helping Greece? I did not sign any such document, yet I will be indebted.

Scisco's picture

Problem is we can't see in the future. Maybe at the time of the loan the numbers did work (I know it is a stretch). But things can change to where it might not be possible to pay off the loan. Therefore concensions must to be made. Taking a loan with the intent to default is fraud, taking a loan and defaulting because of an error in judgment or forcasting is not wrong.

FreedomGuy's picture

You are probably general. I am sure when the loans were taken out the numbers worked. However, governments have the habit of forecasting perpetually rosey revenue scenarios. One has only to look at Greece's spending history to price the risk. I don't think there was actual fraud in the sense of knowing they could not pay. Nor do I think the "banksters" set up Greece for a fall. I think it was lousy forecasting and bad risk pricing on both sides.

I do still stand by my fundamental assertion that collectivisim always fails over time. Countries simply transfer and spend more money than they can collect in revenue. All end up impoverished.

The spam fritter's picture

If something is unsustainable, it will stop.  It's not a question of if, but when.  People are waking up and are getting more and more pissed.  There was an article in the WSJ about the debt held by the Belgian Central Bank, it went on to say that if there was a default, the Belgium government would make them whole!!  Like Belgium is a place to be able to take on more debt, Dexia anyone??


FreedomGuy's picture

Over time it will stop because it is the definition of "unsustainable". However, there can be a heck of a lot of pain and suffering before arriving at that point...and after, too. Rational decisions executed well in advance could prevent or alleviate this, but they are not taken.

CrashisOptimistic's picture

As best I understand the plan, it leans 80% on "voluntary agreement by bondholders to roll over their holdings into more Greek bonds as their holdings mature" thereby avoiding swap triggering default events.

If I'm a bondholder, I agree to this, and when it's time to rollover, I do so at the prevailing market interest rate for the new debt.  The ECB is apparently trying to avoid the new debt being at prevailing rates by announcing it will backstop that new debt, thereby justifying a reduction in the market rate.

It's a GNMA style guarantee of someone else's loan, thereby keeping it off the ECB books.

The world has gone insane and y'all can forget about these maneuvers as the eventual mechanism of collapse.  They will do absolutely anything to keep it all going.

Only oil can and will take it down.

adonisdemilo's picture

C'mon Greece, look at Iceland, take a good hard look.

Tell them all, IMF, ECB, Wall Street et al to fuck off.


carbonmutant's picture

"European Union leaders have ruled out a “total restructuring” of the Greece's debt, said Jean-Claude Juncker and will decide on additional aid for Greece by the end of June."

Greece is not going to default as long as they can get money from the Germans...

downwiththebanks's picture

"Greece:  do the right thing and MAKE ME MONEY!!!

"I've borrowed an assload of Uncle Sam's free money in order to crash the hell out of the Euro.  And really, let's be honest:  nothing else matters!"

DK Delta's picture

  1. I covered the story of Greece and the threats materializing there (as well as the accusations of treason against the prime minister, George Papandreou) on my radio show here in NYC that Max Keiser appeared on last week. Here is a relevant excerpt from the show.

    Please feel free distribute it (about 15 min covering the CDS fraud, the memorandum and the real threat of incursions on Greek boarders and civil strife from non-Greek groups that could be manipulated into creating independence movements to fracture Greece – very serious issue!)

    Excerpt from my Radio Show on the Accusations of Treason against Greek PM George Papandreou –

kumquatsunite's picture

"What does it take for a transaction to become predatory?"

quote from article above


What does it take for foreigners to become predatory? Yahoo, and other sites such as Huffington Post, yesterday had articles (hmm...why appearing now) on the increase in Mexicans/Latinos/whatever! and the tone was a chortling one of such fun, as in..."gee insn't this deliberate deconstruction of the United States via third world trash (ah yes, throw kumquats, but if you think the uneducated, the unmannered, the My-brother-is-a-member-of-the-M13-gang is here to live the "American way" you have lost your marbles). 

Now let's see, concomitant with the last decade of foreign colonization of the United States via purported "legal" immigration (really? is it legal if the people of the United States have been battered and beaten with how bad they are "bad bad white people!" via endless articles of the one ....insert race or gender or non-native person residing in Ameica...that tells Americans they must be "compassionate" with "compassion" meaning self-genocide. The chosen weapon of that self-genocide was letting unheralded immigration (ah that "illegal" thing; really to paraphrase a very famous president, "it depends upon what you mean by "'illegal'") drive housing based on ridiculous loans. Greece is simply doing what the Woodstockians of the World United do: strip the financial system bare and then run like hell. Oh yeah, if you can do it, after all, we are all third worlders now and the motto of the third world is simple: "steal what you can today because tomorrow it's a different government!"

aerial view's picture

agree. These predatory lending schemes were set up from the beginning to enslave countries one way or another. It is time for the Greeks and the rest of the world to stand up to these parasites and eradicate them once and for all. Their liabilities far outweigh their benefits. 

LRC Fan's picture

Already 40 pts off the lowz now. 

citta vritti's picture

Interesting now to see Greece and Portugal listed in 2009 among the small group of five (possibly seven) countries having “potential for graduation” to what the authors view as advanced economy status, that is with a strong likelihood of not being “debt intolerant” serial defaulters, based on data through 2008 (mainly it seems Institutional Investor sovereign ratings). See This Time is Different|Eight Centuries of Financial Folly by Carmen M. Reinhart & Kenneth S. Rogoff, pp. 284-287 (2009). The other candidates were Chile, China and Korea, with Malaysia and Poland “borderline”. 

HowardBeale's picture

Here, here! Default. Stop punishing your children Greece!

goodrich4bk's picture

Let's be careful about portraying the Greeks as deadbeats.  The debts were incurred by the Greek government.  Banking Elites in Europe lent to Government Elites in Greece.  The "people" never had a say on either side of the deal.  True, while interest payments were current, the bank shareholders and bondholders in Europe benefited from higher interest rates and the Greek people benefited from receiving more government services than they were willing to collect in taxes.  But in both cases the largest benefits were received by the Elites who made the deals.

The answer is obvious.  The "people" should hang their respective elites and then accept lower rates of return/fewer government services.