Imagine you are enjoying your breakfast some quiet Sunday morning. The coffee is brewing and your family is bickering peaceably, as it often does. Now imagine that the calm is broken by armed intruders smashing their way into your house. Even before the sound of tinkling glass has faded, they have set upon your spouse, and put a bullet through the forehead of your favourite child. You are strapped to a chair as your wallet and bank statements are examined to determine your worth.
Credit cards are produced, and the guests go on to ring up the charges on all kinds of choice items, though they don't seem particularly choice to you, and you had nothing to do with choosing them. No care is taken to mask the nature of the theft. Your hopes are dashed as you realize that the people taking the orders over the phone know about your situation – they just saw it on the news – but they don't care. They're treating the new owners of your credit cards as the proper legal owners of your burgeoning debt, since what goes on in your house is an internal affair, and they're not inclined to do anything as low as meddle in other people's affairs.
The same, alas, goes for your neighbours, who were at first alarmed by the noise, but have since gone back to their business – until, that is, your guests hold a garage sale to raise more money for themselves. Then, with only a few exceptions, your neighbours do make your business their business, but only long enough to purchase all your belongings at deliciously low prices.
You are muffled and beaten when you try to cry out to them. But after a while you realize that there's little point in crying out to anyone. None of your neighbours will meet your frantic eyes anyway. You're an embarrassment and you're ruining a perfectly good garage sale.
This goes on until you have lost everything. But one day, when your guard's attention slips, you manage to take back your house. Or perhaps a sympathetic neighbour sees that your house might be resold (splitting the profits with you, of course, in some way yet to be specified) and lends a hand.
Except that not only is your house cleaned out, but you also find yourself with a crushing post-party debt. Your credit card companies now take a fresh interest in you, or more precisely, a fresh interest in the interest to be gotten from you.
You consult a lawyer, and he points out that you have a degree, and plenty of potential to make money. After several years, provided you don't crack up under post-traumatic stress, or have bad luck, you should be in a position to start repaying your debt. He says that debt relief in your case would set a damaging precedent – after all, what about all the other people whose homes have been likewise invaded? He chides you that the very rule of law depends on the principle that we pay back our debts, and so the standard for relief of debts needs to be a very, very strict one. He's sorry to inform you that you haven't met this standard. He reminds you that you did, after all, have a balance on your credit cards before the unpleasant business started, and points out – getting increasingly impatient with your incomprehension – that you had all those years tied to a chair in which you might have been paying it off.
Noting your distress, your takes pity and offers you a few consoling (billable) words. He's not suggesting that you pay everything off right away. But part of getting back on your feet is assuming your responsibilities. Chin up, lad. You'll make it through. Don't think that your creditors have given up on you. You'll make it. You'll make it in spite of everything.
Piece parodied below:
Make Baghdad Pay
By MARK MEDISH
The economic consequences of regime change in Iraq could get worse if the United States, Great Britain and their coalition partners act on radical impulses to make grand gestures. A case in point is Iraq's sovereign debt.
Iraq's debt includes $40 billion owed to Paris Club official creditors, most notably Japan, France, Germany and Russia; at least $30 billion to other official creditors; at least $3 billion to London Club commercial banks; and perhaps $10 billion owed to corporate creditors.
What is to be done? Already we hear calls from the right and the left to impose what might be called a "zero option"; that is, cancellation of Iraq's debt. From the right, Richard Perle and William F. Buckley Jr. have called for freeing Iraq of its "odious debt" on moral grounds. From the other end of the political spectrum, Oxfam and Jubilee Iraq have taken much the same position, while Joseph Stiglitz, the Nobelist, is advocating relief on more prudent grounds, citing the lessons of the 1919 Treaty of Versailles, which required Germany to pay heavy war reparations.
These recommendations, though doubtless well intentioned, are misguided. A country like Iraq, with the world's second-largest proven oil reserves, should be expected to be able to pay its obligations. Furthermore, the moral charge that the debts are odious is simply too sweeping. Acting on it would be bad for Iraq and would set a damaging precedent for the international financial system.
For Iraq to normalize its external financial relations, it must respect one of the first principles of the rule of law: contracts should be honored. Without this presumption, markets cannot work. The threshold for overturning the presumption must be kept high to prevent chaos. In the case of Iraq, the threshold has not been met.
Several myths have gained currency in the debt debate. The first is that Iraq's debts are invalid because they were accumulated under Saddam Hussein's regime. This is overbroad and misleading. First, much of the debt, including the bulk of what Iraq owes to banks and corporations, went to finance civilian construction — roads, hospitals, apartments and utilities. By contrast, military-related debt can and should be separated out and perhaps even forgiven.
It's worth remembering, too, that much of Iraq's debt was incurred in the 1970's and 1980's, before sanctions were imposed, when the United States was willingly doing business with the Hussein regime.
Another myth is that historical precedents dictate that zeroing out the debt would be prudent. Post-Versailles Germany is a frequently cited case. But there is an important difference between punitive reparations and commercial debt incurred by a country for civilian projects. Moreover, in the last decade countries like Poland, Egypt and Yugoslavia have escaped their heavy debts not because their debts were forgiven but because the financial community created reasonable long-term repayment plans.
Third is the myth that companies have already written off the Iraqi debts and no longer care about them. This is ridiculous. How companies account for bad debts on their books is irrelevant to the legal status of their claims. It would be a perverse result to extinguish debt simply because a debtor has not paid.
Iraq is entitled to have its special case heard. So far it has been granted an official moratorium through 2004. When the international community decides to begin tackling the wider debt problem, it should follow several simple maxims: avoid radicalism and bad precedents; promote an orderly, market-friendly debt repayment schedule based on financial analysis; and encourage creative solutions, including debt swaps.
Finally, for solutions to be meaningful, Iraq must negotiate with creditors on its own behalf. This, after all, is a major aspect of sovereignty.
The Iraqis should also favor an orderly debt repayment process. The country has been a financial rogue state for the past 12 years. What the new Iraq needs is a reputation for honoring its word.
Mark Medish, a lawyer, was deputy assistant secretary of the Treasury from 1997 to 2000.