“Whatever next?” I thought to myself when the New York Times reported that powerful hedge funds were planning to bring a case to the European Court of Human Rights if Greece changed the law to force private bondholders to take losses. Such a step, claim the funds’ lawyers would amount to an infringement of property rights, which is a human right in the EU. It cannot be, bemoaned one, that Angela Merkel decides who wins and who loses.
The entire tale reminded me of a commentary by the political scientist, Robert Reich. He suggested that the current crisis was a victory for consumers and investors over employees and citizens. These are not discrete groups, of course: all of us occupy two or more of these roles simultaneously. We may be investors, who simply seek to earn a higher yield than the Joneses. Similarly, we may be consumers, who click our way in the internet to the cheapest flat screen TV or lowest-cost weekend getaway. In both cases, the extra one percent of yield or the bargain ‘made in China’ must be paid by somebody. In the case of consumer goods, the payers are people somewhere in the world, sometimes even children, who have to work under trying conditions in order to produce the goods cheaply. Even nearer to home, low-cost production often involves substantial declines in real incomes or outright redundancy.
For investors, the route to higher yields usually involves accepting a higher risk. However, I know someone who bought into cheap Greek bonds in the hope that someone else would step up to take them off his hands if repayment began to look doubtful. Hedge funds have been more rigorous in their preparation for the worst case, in that they have insured against it, sometimes many times over. Angela Merkel’s intervention is an effort to ensure that those who have reaped the reward from high risk also incur the consequences of those risks. Socialising losses is tantamount to confiscating taxpayers’ property.
Hedge funds seem to be behaving like retail consumers who have been mis-sold a service or have found that a product is not fit for service. Now they want to go over the legal route in order to get their money back (although retail consumers should know that discounted goods bought in the sales cannot be refunded or exchanged). So what’s the big deal? Wouldn’t anyone in the funds’ position do the same? Well, if each hedge fund client were all things, investor, consumer, employee and citizen, it wouldn’t make much difference. However, the clients of the hedge funds under discussion are, in many cases, neither citizen nor employee – the payers. Even where they are, society’s unequal income distribution means that they are more investor and consumer than the other two. So the appeal to human rights strikes me as odd. After all, European human rights law concerns not only property rights, but also freedom, security, work and a right to a fair wage. Hopefully, the judges will take this into consideration if the case ever comes to court.
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Tags: European debt crisis, Greece, hedge funds, human rights