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Tuesday 27 March 2012

In Search for Excellence through Critical Thinking & Thought Leadership


In Search for Excellence through Critical Thinking & Thought Leadership


On the occasion of the 191st National Day Anniversary of March 25, the newly appointed Greek Minister of Education, professor Georgios Babiniotis, noted that education is crucial for overcoming the current crisis of our nation. No one could disagree more of the importance of this statement. It is a statement and an ancient Greek idea that secures the nation’s future instead of the short-term solutions and slogans that drive the main attention of today. Hoping that this statement will eventually transform into a concrete policy, we strongly believe that the foundation on which the much troubled Greek educational system is based on (but also our society), is one of critical thinking (and critical reasoning); a best investment that Greece could offer to itself not only at this time of crisis but beyond. Within this context and at this symbolic day, when Greece revolted against the more than four centuries of Ottoman darkness, we contribute this article by Mr. Harris Samaraswith the title, “In Search for Excellence through Critical Thinking & Thought Leadership”; an article that is precise and insightful and a must read by each and every citizen of a truly free world. 

The men below – statesmen, philosophers, explorers, scientists, generals, inventors, artists, businessmen – have been accused or characterized at some point of their lives as dreamers, misfits, unreal, unusual, odd, strange, bizarre, enigmatic, eccentric, egocentric, blasphemous, heretic, radical, even insane and crazy… What is it that they have in common?





Intelligence? Yes they can be characterized as intelligent, but Attila the Hun, Ataturk and Hitler are reported to have been intelligent but their leadership caused the suffering of millions…

Success? Yes, but success can be very subjective… and, one can almost be certain that their road to success has not necessarily been to the liking of all those that they came across… and, the decisions they have taken down the road have indirectly or directly changed the lives of many and not always for the better…

Let’s see,

Solon (638 – 558 BC), the Athenian statesman, lawmaker and poet, the reformer, one of the seven wise men of Athens, credited with having laid the foundations of Athenian democracy, believed that a lawmaker should work only on laws that were possible to improve without a total revolution, “the best that they are possible to receive”.

At a time when Athens was in disarray – poor farmers were becoming serfs of the rich when they could not pay their debts, and the landless were enslaved and sold abroad; territorial groups could not be controlled by the weak central government so the city split into factions – Solon took it upon himself to try to fix the city single-handed. He realized that he had to create a balance between the classes. The vehicle for that balance was the creation of a middle class. And he wrote the constitution.

Nothing can withstand the challenge of new times and the power of critical thinking, he argued, and it is critical thinking that will eventually direct change to the right path. And the constitution is change towards the right path…
Solon writes in one of his poems:


The New Dimension is peaceful, and all work here just as they do on Earth. It’s a place where learning, knowledge and wisdom are essential to that work.
It is not corrupt like the Earth Plane, and there they are free from all of the corruption that exists on Earth today.
We created this New Dimension for growing and learning, as we did Earth.
Minds here are advanced, as the knowledge that was acquired on Earth is now attuned to the minds of New Dimension souls.
It is a slow process for all souls’ minds to learn and absorb knowledge and wisdom.
Love is the answer for all kinds of souls to advance in the Universe. Through love, knowledge and wisdom are well earned.
Critical thinking, the Earth Plane has gotten off track, forgetting or ignoring this most important key to progress.
We all here in the Universe is working so hard with Earth souls to remind them that their purpose on Earth is to advance.
First, they must love themselves if they are going to love all of those around them, if they are going to love other souls, if they are going to help less fortunate souls with love and kindness. All of this is part of Earth lessons they must learn.
Once this is understood, we will attain peace of soul and mind…
Progress is all that matters in the Universe!

Pericles (495 – 429 BC), the Athenian statesman during Athens’ Golden Age (during of which time Athens experienced a growth in intellectual and artistic learning), orator and General, the transformer of Athens into an empire and a dominating power, student of Anaxagoras, believed that only through an open society of humanitarianism, equality and political freedom a state can flourish. “In an open society, he argues, each citizen needs to engage in critical thinking, which requires freedom of thought and expression and the cultural and legal institutions that can facilitate this”.

During “the Golden Age”, scientists like Aristarchus, Pythagoras, and Eudoxus, studied the origins of the universe, the relationship between the Earth, Sun and Moon, that the earth is constantly moving, the earth orbits the sun in an elliptical orbit and the moon orbits the earth with the same kind of orbit. Looking down from the North Pole (Aristarchus explains) the earth spins in a counterclockwise direction on an imaginary line, its axis, once every day – note that, up until and beyond the Renaissance, Europe wrongly believed that the earth was flat and all the planets including the sun revolved around it. Pythagoras of Samos and later Plato explain why Earth is spherical in shape and explain why the eclipses occur… Scientists such was Democritus but also philosophers before him argue and observe for the first time that all matter was made from tiny particles called atoms – it wasn’t until two thousand and three hundred years later that John Dalton revived the ancient Greek theory in order to explain chemical observations… Euclid wrote a book “The Elements”, which was used for more than two thousand years to teach geometry… Aristotle explains for the first time the law of gravity… He also, Aristotle, lays the basis of zoology and Theophrastus botany… Hipparchus invents trigonometry… and later on, Archimedes, discovers the laws of the lever and pulley… Hippocrates explains that health problems have natural causes and have nothing to do with gods and daemons… and he operates on patients on a regular basis…
Why has it taken the world more than two millennia to understand? Was it a period of darkness caused by lack of developed critical thinking skills?

Socrates (469 – 399 BC), the enigmatic classical Athenian philosopher, teacher of Plato, Xenophon, Alcibiades, Critias and Antisthenes, one of the founders of Western philosophy, the father of philosophy and to many the father of psychoanalysis, believed that the highest form of human excellence is to question oneself and others. His insights and examination of key moral concepts such as “good versus evil”, justice, beauty, love, virtue (the most valuable of all possessions), self-realization, were ahead of his time and to a certain extent of our time as well. Socrates felt, that “evil” was nothing more than an outcome of ignorance and an unwillingness to learn about the other side and that those who did wrong knew no better mainly because they had not developed their critical thinking skills. The best way for people to live, according to Socrates, is by focusing on self-development. This fits in line with his core belief that he was merely wise because he knew that he knew nothing, because the person who assumes that has the answer and assumes that has an accurate grasp of what is logical is the person that leads himself into tragedy… Critical thinking, he argued, is opposite of ignorance and conscientious stupidity… Wisdom begins with wondering, thus one must begin with admitting one’s ignorance.

Socrates argued that a philosopher was the only type of person suitable to govern others because only a philosopher could apply his critical thinking skills into true thought leadership… He objected to any form of government that did not conform to his ideal of a perfect republic led by philosophers… because one has to have a comprehensive perception of life in order to govern and lead effectively… He often talked that “our daemons” (a form of divine madness: a sort of insanity that gives us poetry, love, mysticism, philosophy), our inner voice, is a type of externalization of our subconscious or our own thinking processes that we can control and comprehend only if we possess critical thought… Socrates explains that the soul, before its incarnation in the body, was in the “realm of ideas”. There, it saw the things the way they truly were, rather than the pale shadows or copies that we experience on the idea of the earth of mediocrity that we created for ourselves. By a process of questioning, the soul can be brought to remember the ideas in their pure form, thus bringing wisdom.

Socrates, two and a half thousand years ago, preached openly against the 12 gods of Olympus and for one abstract god, invited others to concentrate on friendship and a sense of true community (find the common ground, he preached), argued openly against oligarchy and the priests that through religion they only polarize people, vastly contributed to the field of epistemology (on analyzing the nature of knowledge and how it relates to connected notions such as truth, belief and justification – “we have to not only attend to things literally but also scientifically”), practiced precisely the approach that was meant to liberate the soul and provide insight into a reality that was larger than our own, pushed democracy and liberty to its limits, dared to speak against the Athenian democracy because it oppressed and exploited slaves and women and dared to exclaim (in a society where religion was supreme): how could a democratic society vote to sacrifice an innocent girl?

Pytheas (4th century BC), a Greek geographer, astronomer and businessman from the Greek colony Massalia (modern day Marseilles), made a voyage of exploration to northwestern Europe close to or into the Arctic circle at about 325 BC, travelled around and visited a considerable part of the British Isles, the first person on record to describe, the Midnight Sun, the relationship of tides to the moon, polar ice, Germanic and Finnic tribes (also from an anthropological point of view), the one who introduced the idea of distant Hyperborea (or Ultima Thule) to the geographic and mystic imagination.

Pytheas’ journey is remarkable not just for the fact that he recorded it but because he was a true explorer chronicling the people he met and places he visited, giving an insightful account of pre-historic northern Europe and its people. Not until the beginning of the 20th century and to Arctic explorers Fridtjof Nansen and Vilhjalmur Stefansson were we able to explain and confirm his descriptions of the many strange and fascinating accounts he had experienced including the strange mixture of fog, air, ice and water in those wild, windy and frigid seas. Reaching Greenland, which is part of the North American continent, 1400 years before Leif Ericson and 1900 years before Christopher Columbus, crowns Pytheas as the Explorer of explorers. It makes one wonder what kind of skills and leadership charismas one should possess to achieve what Pytheas achieved two and a half thousand years ago and the despair and frustration he must have felt when he returned to his hometown only to be tagged a crazy…

Leonardo da Vinci (1452 – 1519), the Italian Renaissance polymath, a painter, sculptor, architect, musician, scientist, mathematician, engineer, inventor, anatomist, geologist, cartographer, botanist, and writer whose genius, perhaps more than that of any other figure, epitomized the Renaissance humanist ideal, often been described as the archetype of the Renaissance Man, a man of “unquenchable curiosity” and “feverishly inventive imagination”, believed that for the development of a complete mind one should study the science of art; study the art of science; develop his/her critical senses, especially learn how to see; realize that everything connects to everything else.

Galileo Galilei (1564 – 1642), an Italian physicist, mathematician, astronomer, and philosopher who played a major role in the scientific revolution, the father of modern observational astronomy, the father of modern physics, and the father of modern science who at a period of darkness while facing death and torture by the inquisition when he was accused by the Catholic church for “vehement suspicion of heresy”, uttered: “And yet it moves”.

Imagine, at a time such were the Dark Ages, a period of intellectual darkness that lasted for more than five centuries, a handful of thinkers, such was Galileo Galilei, not only dared to defy torture and death and the stereotypes of the time but possessed and developed those skills that enabled him to think critically and create.

Thomas Edison (1847 – 1931), an American inventor and businessman, who’s incredible ability to come up with a meaningful new patent every two weeks throughout his working career added more to the collective wealth of the world and had more impact upon shaping modern civilization than the accomplishments of any figure since Gutenberg; the inventor of the phonograph, the motion picture camera, a longer-lasting electric light bulb and the first genuinely safe and economically viable system for generating and distributing light and power, one of the first inventors to apply the principles of mass production and large teamwork to the process of invention, often credited with the creation of the first industrial research laboratory.

His passion and quest for answers, driven by a superhuman desire to fulfill the promise of research and invent things to serve mankind, often ascribed him as peculiar to the extent that a number of “medical authorities” of the time have argued that he may have been plagued by a fundamental learning disability that went well beyond his deafness… Others had conjectured that this mysterious ailment, along with his lack of a formal education, may account for why he always seemed to think so differently compared to others: “Always tenaciously clinging to those unique methods of analysis and experimentation with which he alone seemed to feel so comfortable…”.
Albert Einstein (1879 – 1955), a German-born theoretical physicist who developed the theory of general relativity effecting a revolution in physics, discoverer of the law of photoelectric effect, father of modern physics and one of the most prolific intellects in human history, believed that the development of general ability for independent thinking and judgment should always be placed foremost, not the acquisition of special knowledge.

The important thing
Einstein argued that it is not enough to teach a man a specialty. Through the specialty he may become a kind of useful machine but not a harmoniously developed personality. It is essential that the student acquires an understanding of and a lively feeling for values. He must acquire a vivid sense of the beautiful and of the morally good. Otherwise he, with his specialized knowledge, more closely resembles a well trained dog than a harmoniously developed person. He must learn to understand the motives of human beings, their illusions, and their sufferings in order to acquire a proper relationship to the individual fellow-men and to the community…

George Soros (1930 – ), a Hungarian-born businessman, investor, financier and billionaire, Chairman of Soros Fund Management LLC and Chairman of the Open Society Institute, supporter of progressive-liberal causes and philanthropist, developer of the theory of reflexivity based on the ideas of Karl Popper and author, is known as the man who broke the Bank of England (1992) and “accused” for triggering the Asian Financial Crisis (1997).

Steve Jobs (1955 – 2011), an American businessman, designer and inventor, best known as the co-founder, chairman, and CEO of Apple Inc., widely recognized as a charismatic pioneer of the personal computer revolution, and for his influential career in the computer and consumer electronics fields. After losing a power struggle with the board of directors of Apple in 1985, he returns in 1997 as its interim CEO when the company is near bankrupt. Under his leadership, in 1998 Apple becomes profitable and by 2011 it becomes the world’s most valuable company.

Bill Gates (1955 – ), an American business magnate, investor, philanthropist, and author, co-founder, former CEO and current chairman of Microsoft, consistently ranked among the world’s wealthiest people, one of the best-known entrepreneurs of the personal computer revolution.

Soros, Jobs and Gates, have all been characterized by an amazing ability to find the flaws, or see opportunities, or connect the dots; by an ability to zoom in to details with precision or zoom out to the big picture; by a constant charisma to flip back in time or fast forward to the future and by the ability to focus on the merits of the idea or innovation before worrying about the business case. All, characteristics of a critical thinker… Whether a World War II refugee, or school drop-outs, Soros, Jobs and Gates, mastered the charismas required to achieve and through developing their critical thinking skills, thinking outside-the-box, thinking strategically, defying the obvious, against the status quo, thinking creatively, with passion and purpose established empires against all odds! Three critical thinkers that have been amongst the most influential of the 20th and 21st century…

So, what does Solon, Pericles, Socrates, Pytheas, da Vinci, Galileo, Edison, Einstein, Soros, Jobs and Gates have in common? Is it intelligence and brilliance, courage and vigilance, curiosity and imagination, passion and purpose, vision and creativity? Yes, probably all of the above but none alone could have made them achieve the remarkable and extraordinary accomplishments they did achieve, contrary to common belief of their times, practice and understanding unless they possessed critical thinking skills: To exhaust the answers to their own questions of ideas, the “whys” and the “whynots”, the “cans” and the “cannots”, the “hows” and the “hownots”, the “whatifs”. They are all critical thinkers, acknowledged for their achievements and accomplishments to the extent that some if not all have been characterized by either history or by their peers, enemies and opponents as “Great” men.

Now,

Are all critical thinkers “Great” men or are all “Great” men critical thinkers? We seem to consider a “Great” man to be someone who had a positive impact on people and society. Solon, Socrates, Plato, Aristotle, Martin Luther King, Nelson Mandela, Mahatma Gandhi are unquestionably great men whose actions were beneficial to millions. But then what about the others? What about Alexander the “Great”, Attila the Hun, Napoleon, Hitler or Lenin? As Machiavellian or ruthless as you might want to make them, they all participated in shaping the world we live in today. They as well must have possessed critical thinking skills that guided their decisions and achievements… But the latter cannot be “Great” from the view of a true or ideal critical thinker, being influential or a great leader does not make one into a true critical thinker. Socrates explains it best through his life and legacy: The critical thinker should possess not only inquiry but also intellectual integrity, must be humble and with skeptical attitude. A critical thinker cannot be dogmatic, despotic or nepotistic. A critical thinker must argue freely according to conscience, above all liberties. A critical thinker is logical thus he cannot be a conqueror of people or a warmonger. Above all a critical thinker is virtuous.

What about their followers? What about the followers of men and great leaders like Alexander the “Great”, Napoleon and Hitler? Yes, it was different times and different circumstances and one cannot compare with the other, but they all conquered people, made slaves of people, tortured or killed, in the name of an idea, their own idea that it was not necessarily the idea of the people they conquered. Well, what about the people that followed these men? In the case of Hitler, for instance, could he have caused such horrific suffering and death without millions of unquestioning patriotic followers? Walter Lippmann explains: “The German experiment, except to those who are its victims, is particularly interesting… For the Germans are the most gifted and most highly educated people who ever devoted the full strength of a modern state to stopping the exchange of ideas; they are the most highly organized people who ever devoted all the coercive power of government to the abolition of their own intellectual life; they are the most learned people who ever pretended to believe that the premises and the conclusion of all inquiry may be fixed by political fiat”. It was a conditioned lack of mass self-awareness, along with love of ease, unwillingness to dispel social and moral delusions, headlong rush into the mindless attitude that “everything is okay” that “forced” the majority of the German people to follow Hitler. It was lack of the ability to think critically. A whole nation lived in denial, polarized by a leadership that cleverly and systematically “indoctrinated” its citizens by “selling” to them what they wanted and liked to hear; touched and entertained their complexes, to such an extent that discrimination was acceptable; elimination of the thinking elements of their society was made tolerable because they were somehow convinced that they were a threat, mass murder and torture as a means to an end, bullying and jingoism were all unobjectionable because the followers lacked critical thought and their leadership lack thought – a society of madness.

What about superpowers? All empires and superpowers, i.e. Sumerian, Persian, Egyptian, Greek, Roman, Byzantine, Ottoman, British, Soviet, have collapsed and all failed because of a variety of reasons, but none more prominent than these four: (a) over-extension of limited resources (i.e., debt); (b) corruption; (c) loss of their vibrant, innovative middle class; and (d) seriously poor judgment on the part of leadership. These four reasons have one common denominator: critical thinking, or rather the lack of critical thinking skills. And what about the dominant and influential superpowers of the present (and their followers)…

What is an idea without critical thinking?

An idea is a thought or suggestion, a concept or mental impression as to a possible course of action. But how can one make an idea materialize, formed, shaped if he or she does not possess critical thinking skills? Even the idea itself, how can it be generated if one does not ask “Why?”, “How?” or “What if?”. And when would one know when is the best “When” for the idea to best take shape into a “project” or be best optimized (optimum scenario for the idea), adopted, realized?

How can one ask the best Why, How, What if, or When, if that person is not in a position to identify the aspects and parameters that make that idea a brilliant idea, that is not just an idea but also a “sensible” one? How can one be courageous and vigilant and fight for and pursue the “right” cause, project or idea? How can one be curious enough to become imaginative about life’s pleasures and rewards? How can one be creative and fulfill his vision with passion and purpose? How can one become a contributing and productive member of society but first to himself? How can one respect himself and others? How can one master the essence of life?

Can a “sensible” idea emerge without critical thinking? And can an idea be actively and skillfully conceptualized, applied, analyzed, synthesized, generalized, evaluated, observed, experienced, reflected, reasoned, or communicated best as a guide to belief and action, with clarity, accuracy, precision, consistency, relevance, sound evidence, good reasons, depth, breadth, and fairness, if it is not “embraced” by a critical thinking process?

It cannot! Critical thinking entails the examination of those structures or elements of thought implicit in all reasoning – purpose, problem, or question-at-issue; assumptions; concepts; empirical grounding; reasoning leading to conclusions; implications and consequences; objections from alternative viewpoints; and frame of reference. Critical thinking, in being responsive to variable subject matter, issues, and purposes, is incorporated in a family of interwoven modes of thinking – such are, scientific thinking, mathematical thinking, historical thinking, anthropological thinking, economic thinking, moral thinking, and philosophical thinking.

But, no one is a critical thinker through-and-through or can be, as it depends to the critical thinker’s insights and deficiencies, tendencies and self-delusion, and that is merely why the development of critical thinking is a life-long endeavor. Also, when critical thinking is grounded in selfish motives, it is often manifested in the skillful manipulation of ideas in service of one’s own, or one’s groups’, vested interest (e.g., Hitler and Nazism). As such it is typically intellectually flawed, however pragmatically successful it might be. When grounded in Socrates’ virtue and intellectual integrity, it is typically of a higher order intellectually, though subject to the charge of idealism by those habituated to its selfish use.

And, one being a critical thinker does not necessarily mean that he or she will be a successful business person or a leader of people, unless his or her critical thinking skills are enhanced by passion, determination, perseverance, courage, hard work, insight and organizational abilities.

The Hellenistic Era philosophers argued that if you are to master the meaning of life, if you are to be whole as a person and a true member of society, if you are to be a leader and at least be able to lead yourself to the quest for life and excellence, you will need to develop your critical thinking skills. On a broader perspective, the spirit of enlightenment and the renewal of philosophy and what it entails, is dying with the slow death of the “cultivation of critical thinking”… The demand for true “freedom” and social justice is fading with the direct and indirect silence or confinement of those intellectual circles and voices that over time “motivated” and gave food for thought (critical thought) for people to live with virtue and courage… and to assume responsibility of own life through creativity, vision, hard work, planning, innovation… in search for excellence!

Critical Thinking Pioneers

From Socrates method of probing questioning, who set the agenda for the tradition of critical thinking, establishing the importance of seeking evidence, closely examining reasoning and assumptions, analyzing basic concepts, and tracing out implications not only of what is said but of what is done as well, the need in critical thinking for clarity and logical consistency to Plato, Aristotle and the Greek sophists, all of whom emphasized that things are often very different from what they appear to be and that only the trained mind is prepared to see through the way things look to us on the surface to the way they really are beneath the surface (the deeper realities of life). From this ancient Greek tradition of thought emerged the need, for anyone who aspired to understand the deeper realities, to think systematically, to trace implications broadly and deeply, for only thinking that is comprehensive, well-reasoned, and responsive to objections can take us beyond the surface.

Then to the Middle Ages with thinkers such was Thomas Aquinas who to ensure his thinking met the test of critical thought, always systematically stated, considered, and answered all criticisms of his ideas as a necessary stage in developing them.

In the Renaissance with scholars such were Colet, Erasmus and More who highlighted the importance to think critically about religion, art, society, human nature, law, and freedom. And Francis Bacon who was explicitly concerned with the way we misuse our minds in seeking knowledge and who in his “The Advancement of Learning” argued for the importance of studying the world empirically and the problems in thinking when based on blind rules and poor instruction. Descartes, who in his “Rules for the Direction of the Mind” argued for the need in thinking for clarity and precision with emphasis to base thinking on well-thought through foundational assumptions.

In the Italian Renaissance, Machiavelli, critically assessed the politics of the day, and laid the foundation for modern critical political thought. He critically analyzed how government did function and laid the foundation for political thinking that exposes both, on the one hand, the real agendas of politicians and, on the other hand, the many contradictions and inconsistencies of the hard, cruel, world of the politics of his day.

It was in this spirit of intellectual freedom and critical thought that people such as Robert Boyle, Isaac Newton, Copernicus, Galileo, and Kepler developed a far-reaching framework of thought which roundly criticized the traditionally accepted world view.

The thinkers of the French Enlightenment, such were Bayle, Montesquieu, Voltaire, and Diderot who began with the premise that the human mind, when disciplined by reason, is better able to figure out the nature of the social and political world and who valued disciplined intellectual exchange, in which all views had to be submitted to serious analysis and critique, believed that all authority must submit in one way or another to the scrutiny of reasonable critical questioning.

In the 18th century, thinkers like Adam Smith and Kant through the power of critical though and its tools, produced “The Wealth of Nations” (applied to economics) and “Critique of Pure Thought” (applied to reason) respectively.

In the 19th century, critical thought was extended even further into the domain of human social life by Comte and Spencer. Applied to the problems of capitalism, it produced the searching social and economic critique of Karl Marx. Applied to the history of human culture and the basis of biological life, it led to Darwin’s “Descent of Man”. Applied to the unconscious mind, it is reflected in the works of Sigmund Freud. Applied to cultures, it led to the establishment of the field of Anthropological studies. Applied to language, it led to the field of Linguistics and to many deep probings of the functions of symbols and language in human life.

In the 20th century, William Graham Sumner published “Folkways”, in which he documented the tendency of the human mind to think sociocentrically. John Dewey agreed and from his work, we have increased our sense of the pragmatic basis of human thought (its instrumental nature), and especially its grounding in actual human purposes, goals, and objectives. From the work of Ludwig Wittgenstein we have increased our awareness not only of the importance of concepts in human thought, but also of the need to analyze concepts and assess their power and limitations. From the work of Piaget, we have increased our awareness of the egocentric and sociocentric tendencies of human thought and of the special need to develop critical thought which is able to reason within multiple standpoints, and to be raised to the level of “conscious realization.” From the massive contribution of all the “hard” sciences, we have learned the power of information and the importance of gathering information with great care and precision, and with sensitivity to its potential inaccuracy, distortion, or misuse. From the contribution of depth-psychology, we have learned how easily the human mind is self-deceived, how easily it unconsciously constructs illusions and delusions, how easily it rationalizes and stereotypes, projects and scapegoats.

Thursday 15 March 2012

Greece’s default The wait is over The biggest sovereign default in history, and the most anticipated


Greece’s default
The wait is over
The biggest sovereign default in history, and the most anticipated


Greek creditors on a day trip



MOST came quietly in the end. After a tortuous process, the majority of private holders of Greek government bonds had agreed by March 9th to trade in their bonds for new longer-dated ones with less than half the face value of the old ones and a low interest rate. The biggest sovereign-debt restructuring in history allowed Greece to wipe some €100 billion ($130 billion) from its debts of around €350 billion. It will also be the first test of the resilience of the financial system to the payment on sovereign bonds of credit-default swaps (CDSs), a form of insurance against bad debts.

Holders of €152 billion of the €177 billion of sovereign bonds issued under Greek law signed up to the swap. The rest—those who did not respond to the bond-exchange offer or the holders of around €9 billion of bonds who opposed it—were forced to accept the deal. The Greek government invoked a recently enacted law that bound all private bondholders to the bond-swap if more than two-thirds of them consented to it. Around €20 billion of the €29 billion of Greek bonds issued under foreign law also agreed to the swap. The rump were given until March 23rd to come around to the deal.



The threat of coercion might explain why big holders like banks and pension funds chose not to contest the terms of the swap. But Greece needed to achieve close to 100% participation in the bond-swap to unlock its second bail-out package from international lenders. That meant it had to force the small group of malcontents to swallow the deal, which in turn meant it could no longer be seen as voluntary. That triggered a “credit event” and started a process that will lead to a payout of CDS insurance on Greek bonds later this month.

Financial markets took the news with a shrug, even though for months European officials have looked with horror at the prospect of a sovereign-credit event in the euro zone. Their angst stemmed partly from earlier official pledges that Greece would not default or restructure its debts: a “voluntary” loss-taking by private investors would have allowed that fiction to be upheld. Euro-zone policymakers may also have been anxious not to trigger payouts to amoral “speculators” who had bet against a country going bust.

Their disquiet also had deeper roots. Corporate defaults that lead to payment of CDS insurance are routine but a sovereign credit event is a novelty. There was natural anxiety about how it would go.

Natural but misplaced. The notional value of Greek sovereign bonds insured by CDSs is around $69 billion, according to DTCC, a data repository. But banks and hedge funds have offsetting exposures, having issued some CDS insurance contracts and bought others. Once these wash out, the net exposure to a Greek default is a more modest €3.2 billion. The losses incurred by insurers on Greek CDSs would have to be heavily concentrated to threaten the financial system. And since the new Greek bonds issued in the swap have some market value (though they are already trading at a deep discount), the money changing hands after the precise payout is determined on March 19th will be somewhat less than that figure. The real problem would have been if the Greek bond swap had not triggered payouts on CDSs, ruining their credibility as a source of protection against future sovereign defaults, and raising government-borrowing costs.

Other aspects of the restructuring are more troubling. One is that the European Central Bank (ECB) was able to sidestep a coercive write-down of its Greek bonds, acquired as part of a programme to stabilise bond markets in troubled euro-zone countries. That will undermine its power to stop future market panic through bond purchases, since investors now know that the larger the ECB holding of a country’s bonds is, the bigger the write-down private investors would suffer in a restructuring.

The ECB could instead resort to providing unlimited amounts of cheap long-term loans to banks to stem any future panic, as it did so successfully with its auctions of three-year money in December and February. But that success comes at a cost. The healthier sort of bank, with an excess of deposits over loans, is now less likely to lend its spare cash to other banks for fear that they have already pledged their best collateral to the ECB in exchange for long-term liquidity. Jens Weidmann, the head of Germany’s Bundesbank, worried out loud this week that some banks will become dependent on cheap ECB liquidity. That fear may already have come to pass.

Sunday 11 March 2012

What the Greek Rescue is Really About


What the Greek Rescue is Really About
By Dan Denning


In today’s Daily Reckoning, we’ll do something we can barely stand to do: we’re going to write one more time about Greece. If you can stand to read it, you may come to the same conclusion we reached.
That conclusion is simple: what’s going on Europe has nothing to do with solving a debt crisis and everything to do with preserving a corrupt system based on limitless debt and growing government power. The sooner you understand that fact, the sooner you’ll be able to prepare for what happens next. There are two options for what happens next, and we’ll get to those shortly.