Debt and The Little Guy

Why is it always the little guy who ends up holding the bag when it comes to contracts? A business contract, or any contract between the two parties is a building brick of liberal market-based democracy. The idea is that it can’t be altered midway and if it is, it has to abide by the agreement of the two parties involved. But somehow, the lesser party always gets the shaft. Just look at the bankruptcy laws: it is much harder for an average person to file for bankruptcy and thus extinguish the debt, than for a corporation or a country. On a geopolitical scale, if a country is considered third-world or insufficiently developed, tough luck: a more developed country will always have more leverage when it comes the delinquent country’s debt. A bunch of important looking suits from IMF or ECB will come in and explain to the indigenous how things are done in this world.

Take student debt for example. Why doesn’t one have an option to default on it – an option any corporation or a business take for granted? Default should be in a range of options for an individual, the same way it is for a business. Why such double standard? When corporation is about to default there will be all kinds of negotiations and debt restructuring, and haircuts. But no such luck exists for underwater homeowner. Somehow personal responsibility is only applied to poor schmucks; for others, more powerful, default is not a moral failure, but a sound business decision.

The question of morality, or “moral hazard” is especially poignant in the Greek crisis. OK, so Greeks lived profligate ways before 2009. No one payed taxes, people retired at 50 with generous pensions. That happened. Those who talk about moral hazard – that is rewarding bad behavior – always bring up lazy, coffee-drinking, tax-avoiding Greeks.

Yes, there’s moral hazard here, but it’s not coming from the deadbeat Greeks. The moral hazard is coming from lenders and especially bondholders of Greek debt – French and German banks that were made whole on that debt by those very loans from the troika. The message here is loud and clear: if you buy bonds from a dicey country you will be saved. The moral hazard is not that the riffraff will provide bad example to other riffraffs around the world who can’t pay their debt. The moral hazard is that the lenders and bondholders will always expect to be rescued.

Even more upsetting in this whole Greek mess is the position of Germans, whose own debt from WWII was forgiven in 1953. Why can’t they extend the same courtesy to Greeks now, if not out of magnanimity, then out of mere political expediency?

The prospect of moral hazard has a puzzling, mysterious spell over the large swaths of population. It’s like they collectively lost their minds. My entire Facebook feed, which is dominated by Russian-Jewish immigrants, is full of vitriol towards the spendthrift Greeks and praise of hard-working, prudent, morally upright Germans. Parallels with debt forgiveness don’t register. It’s like they’re more willing to forgive one nation the destruction of Europe and killings of millions (the ways Germany incurred those debts), rather than to forgive Greeks for merely being lazy. Think about the implications of this approach: laziness is a much bigger sin for those people than military aggression and murder of millions. I tried to think about why that is and the answer I keep coming up with is the professionalism. We admire professionals, even if they’re good at killing, and despise lazy fucks. To be good at nothing is an abomination, and the people who are good at nothing don’t deserve debt forgiveness.

When the strong are incapable of mercy they are not strong at all. They are vengeful, small-minded, petulant children.

 

2 thoughts on “Debt and The Little Guy

  1. David says:

    The obvious answer to the first question posed in your first sentence is that the strong (read wealthy) write the laws made by their political surrogates by which the weak are then bound by contracts.

    You might include “greedy, arrogant and spiritually underdeveloped” to the last sentence as well.

    Well written…

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