January 28, 2015

What about the moral responsibility of telling the whole truth about Greece’s debts?

Sir, Martin Wolf writes: ”Done correctly, debt reduction would benefit Greece and the rest of the Eurozone... Unfortunately, reaching such an agreement may be impossible… moralistic propositions in particular get in the way…[one being] that the Greeks borrowed the money and so are duty bound to pay it back, how ever much it costs them… The truth, however, is that creditors have a moral responsibility to lend wisely. If they fail to do due diligence on their borrowers, they deserve what is going to happen” “Greek debt and a default of statesmanship” January 28.

The problem with that is that it does not contain “the whole truth and nothing but the truth.” Had it not been for the fact that European regulators allowed banks to hold little or even zero equity against loans to sovereigns, like Greece; which tempted banks with extraordinary expected risk-adjusted returns on equity when lending to sovereigns, like to Greece, then banks would never ever have lent so much money to Greece.

What about the moral responsibility of bank regulators of not distorting the allocation of bank credit? What about the moral responsibility of journalists of telling it like it is?

I am sure that if this truth really comes out Greece’s debt problem could be looked at in a much more understanding light… and perhaps would allow Greece, in a first stage, to restructure all its debts in terms appropriate to the risk-profile regulators held it to fit… something like that of Germany’s.

What would Greece’s debt profile look like if it received terms like 30 years at 1 percent?