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DSK and the Greek Myth of "Reprofiling"

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With IMF leader Dominique Strauss-Kahn under arrest for sexual assault, many have predicted the Euro's demise. After all, DSK is a founding father of the common currency and the architect of bailouts that have propped up the euro zone. Whether or not the euro follows his steep downward arc, Greek debt, like the Greek word hubris, comes to mind. The euro authorities claim Greek bonds would be "reprofiled" not "restructured" and the financial world is left to parse the difference.

A liquid bond market is like a well-functioning justice system: transparent and fair. But as we all know, markets and trials can both hit the skids. Just as lawyers mangle language to fix the truth, countries resort to euphemism to craft their economic image. Underpinning both louche pursuits is the fear that if you don't spin the news, the news will spin you. It's true that a world leader cannot really admit a country is broke. The very words will prompt a "run on the bank" as bondholders sell, causing interest rates to rise and a self-fulfilling death spiral. So too a lawyer must advocate to avoid a conviction in the press.

Too often the maneuvers themselves are the only things transparent. When lawyers cobble together sentences like "The evidence, we believe, will not be consistent with a forcible encounter" as Ben Brafman did on DSK's behalf, it rings less like a declarative statement than a poorly-hedged bon mot crafted by the billable hour. And when Euro-group Chairman Jean-Claude Juncker says that "A large [Greek debt] restructuring is no option" then breathlessly adds "I wouldn't exclude in a definite way a kind of reprofiling," we sit and snicker. The not quite artful distinction without a difference hangs in the air.

Apparently a "reprofiling" would only lengthen maturity dates, not cause a haircut to debt principal. But as any first year B-school student knows, when you lengthen maturity dates (given the time value of money), you alter terms in a material way. If the present value of the loan changes as it does with the maturity date, then the loan has been "restructured." If interest rates are adjusted upward to compensate, then a "restructuring" rears its singular head again. Semantics alone can't change the truth.

The evidence or lack thereof of DSK's alleged assault hasn't been released, but the finances of Greece are better known. The markets, unlike the jury, have spoken on the latter. We can't know whether DSK did it or not, but I do know that Greece is broke in any language.