As the cliché goes, when it rains, it pours. So with that in mind, here is my second consecutive posting about a veridiction (my name for the process of verifying predictions), so here goes.
On the January 20, 2012, edition of the podcast for the radio program Marketplace, one of the guests was Felix Salmon of Reuters.
In that episode, Mr. Salmon made the prediction that “Greece is going to default on March 20…”
The debt-ridden country had a big bill due (about 350 billion euros) and Mr. Salmon was going out on the prediction limb to say that Athens would default. According to Investopedia, the definition of a default as a “…failure on the repayment of a county’s government debts.”
To me, a default means that the person, or country, that owes the debt does not pay the debt back.
So, what happened when the middle of March rolled around?
This article from The Economist has all the details, but suffice it to say that an agreement was hammered out between those that owed the money (i.e., Greece) and those to whom the money was owed to (i.e., bondholders). Long story short, the bondholders agreed (or, more technically, were forced to agree) to turn in their bonds and, in exchange, they received new bonds from Athens.
Technically, Mr. Salmon’s prediction fell short as Greece did not default on the debt. They did fail to pay what they owed because they created a new agreement.
However, there is the “spirit of the law” and the “letter of the law”. While Greece managed to avoid a default on 3/20 by the “letter of the law”, they certainly defied the “spirit” of what a default is as it (in the words of The Economist article) “…invoked a recently enacted law that bound all private bondholders to the bond-swap if more than two-thirds of them consented to it.”
Must be nice to have a legislative body at your side to help you write down the red ink. I wish I could do that when my credit card bill comes due.
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