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Sorry, Argentina, but a Debt Is a Debt

For advice on struggling nations seeking debt restructuring, look no further than Jewish law

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Gelt and Innocence

A feverish love of collecting masked a family’s shameful truth: There was no money.

Argentina’s default on its sovereign debt in 2001 set in motion a long and complicated process designed to convince those to whom it owed money to restructure the loan. By 2010, the troubled Latin American nation, now more or less back on its feet, proposed a new arrangement, offering its bondholders about 30 cents on the dollar. An overwhelming majority signed on, but a handful—mainly investors who bought the bonds from their original holders for a reduced price, expecting to turn a profit—did not. A deal, they said, was a deal.

The U.S. Second Circuit Court of Appeals ruled in favor of the holdouts, and the case found its way to the Supreme Court. A chorus of concerned voices rose up to warn of the potential consequences should Argentina lose. Brazil, Mexico, and France filed amicus curiae briefs, as did the Nobel-winning economist Joseph Stiglitz, who wrote that “the Second Circuit’s decision in this case—if left standing by this Court—will threaten to upend global sovereign-debt markets, harm developing nations, and challenge New York’s position as a global financial capital.”

Unmoved, the Supreme Court decided not to review the earlier ruling. What happened as a result was nothing: Sovereign debt markets registered little movement, and Argentina’s debt, after an initial dip, bounced back once the government in Buenos Aires grudgingly hinted that it was ready to negotiate with its bondholders. Clearly undeterred by the Supreme Court’s decision, Ecuador, having itself defaulted in 2008, waited just one day before taking to Wall Street to sell $2 billion worth of 10-year bonds.

The economic predictions of those who supported Argentina’s restructuring bid fell flat, but what about their moral argument? In an op-ed in the New York Times, one such supporter, Mark Weisbrot, the co-director of the Center for Economic and Policy Research, a progressive think-tank, essentially served up Ezekiel’s old chestnut about fathers eating sour grapes and their children’s teeth growing numb.

“The appellate court ruled that if Argentina was paying the holders of restructured bonds, it must also pay the holdout or vulture fund creditors in full—and its decision implies that the punishment for an attempted default could be never-ending,” Weisbrot wrote. “This raises the question of how many decades a people should be forced to suffer for the mistakes or transgressions of earlier leaders—whether elected or, as is often the case, unelected.”

Jewish law, in its infinite wisdom, offers a simple answer to this question: until the debt is paid.

That may sound harsh. It may also evoke St. Paul’s harsh judgment about Judaism being the religion of law while Christianity was the religion of love. In Matthew, after all, we get a choice parable about debt: A servant goes before his master, owing 10,000 bags of gold. He is unable to pay, and so the master orders that all of the servant’s property, including his wife and children, be taken away from him. The servant begs for mercy; “Be patient with me,” he pleads, “and I will pay back everything.” The master takes pity on the servant, forgives his debt, and lets him go. Jubilant, the servant walks outside and meets another servant who owes him a hundred silver coins. He grabs his debtor, chokes him, and demands the money. “Be patient with me,” says the other servant, “and I will pay back everything.” But the first servant refuses; instead, he has his debtor thrown in prison until he can pay back the silver. Word of this travels back to the master, who is so livid at the first servant’s inability to show his fellow man the same quality of mercy he himself had enjoyed that he has him jailed and tortured. “This,” Jesus concludes by saying, “is how my heavenly Father will treat each of you unless you forgive your brother or sister from your heart.”

It’s a moving story, but it solves very few problems. We humans are not divine, and our interactions are rarely guided solely by spiritual edicts. We’re a transactional species; what we need is not a parable but contract law. This realization haunted Christianity throughout much of its early years as an ascendant religion. Read Peter Brown’s majestic Through the Eye of a Needle: Wealth, the Fall of Rome, and the Making of Christianity in the West, 350-550 A.D., and you’ll get a fine portrayal of how a Roman economy based on a model of civic obligation was gradually replaced by a “new emphasis on the supernatural efficacy of the Christian gift.” Charity, debt, wealth—all were governed by a set of theological entanglements that sanctified poverty even as the church grew richer and more powerful. All the while, it tried to negotiate the practical meaning of Jesus’ insistence that the affluent had little reason to expect any part of the kingdom of heaven.

Judaism, on the other hand, delivered a more earthly account. While advocating the forgiveness of debt every seven years as a measure against destitution, it nonetheless realized the need to approach economic questions in all their thorniness, stacking the Talmud with numerous in-depth discussions about loans, interest rates, and other practicalities. But the essence of the religion’s approach to these matters was best captured, as is so often the case, by Maimonides, who famously offered up a hierarchy of eight levels of charity. At its bottom was begrudged giving; at its top, supporting a fellow Jew by empowering him to grow resilient and self-sufficient.

This, then, is Judaism’s radical difference: Rather than advocate unequivocal forgiveness and channel all transactions through a central institution, i.e., the church, it opted to remain committed to the uneasy exchanges between people, which meant offering measures of mercy but ultimately insisting that words be kept and obligations met.

The same wisdom applies not only to nomadic tribes erring through the wilderness millennia ago, but also to deadbeat nations struggling to keep up with their obligations today. We’ve already seen that nothing terrible happened when American courts stood up and defended bondholders’ rights to get their just dues. Let us now also disabuse ourselves of the notion that there’s something inherently moral about waving our hands and canceling mounds of debt. Instead, we should rejoice in the knowledge that we’re protected by a system that still believes, as a recent Wall Street Journal editorial put it, in “the assurance that the law is the law and a deal is a deal.”

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Sorry, Argentina, but a Debt Is a Debt

For advice on struggling nations seeking debt restructuring, look no further than Jewish law

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