CDS buyers, feminists and Marx: Odd bedfellows in the era of the euro crisis

“Here is our offer: Accept a 50% haircut on your Greek bonds. If you choose not to consent, and it is your prerogative not to, we shall give the green light to Greece to declare a 100% default.” This was in essence the deal that Mr Dallara accepted in the wee hours of the morning on 27th October on behalf of bankers that had lent to Greece prior to the May 2010 ‘bailout’. In Hollywood parlance they might as well have told him: “we shall make you an offer you cannot refuse!”

Following the deal’s announcement a debate began on whether  the International Swaps and Derivatives Agency, the ISDA, whose job it is to declare credit events that trigger off CDS contracts, should accept that Mr Dallara’s capitulation was voluntary or declare that he was coerced. In what follows, I shall not delve on the financial repercussions of the ISDA’s decision (For my views on this click here.) Instead, I dedicate the following lines to a delicious irony that stems from the bankers’ predicament: Perhaps for the first time in history, they find themselves in the same camp as feminists and assorted leftists. I shall try to argue below, the ‘deal’ imposed on Mr Dallara by Mrs Merkel plunged (unwittingly) the bankers, the financial press, the world’s hardnosed financial experts, the whole of Wall Street and the City of London, into the kind of debate that is, normally, the privileged realm of feminist and Marxist intellectuals.

How come? Come to think of it, from the very beginning (at least since Mary Wollstonecraft, if not much earlier) feminists made it their business to debate the limits of consent. Does the fact that most women consented to (indeed, played a hand in reproducing) their inferior social status mean that the latter is freely chosen? Does consenting to a violent husband legitimise wife bashing? These were the questions that spearheaded the feminist critique of liberal thinkers’ tendency to identify consent with freedom.

At around the same time, the Left (ploughing a fertile furrow first dug up by thinkers like Marx, Bakunin et al) disputed the notion that the labour contract (between employer and employee) is free and fair simply because the employee consents to its terms and conditions. Marx’s poignant argument was that desperate people, lacking any real access to alternative ways of eking a living, will consent to desperately awful wage offers and to misanthropic working conditions. Indeed, he added that, in such cases, consent under duress reveals precisely the opposite of free choice: it is nothing short of coerced imposition on the one of the iron will (and grubby interests) of another.

Much more recently, the Canadian political theorist C.B Macpherson (see his brilliant 1973 book Democratic Theory: Essays in retrieval) revamped the standard liberal definition of freedom. He argued that we must desist from identifying freedom to enter into an agreement with the requirement that one must consent to that agreement. Instead, he offered the alternative definition according to which an agreement is genuinely free if one has the option not to consent to the offer the other side proposes.

Suppose, for instance, that I make you an offer; e.g. to ‘relieve’ you of something you own at a given price. The litmus test of the purity and fairness of the exchange is whether you have the option to say ‘no’ and not whether you actually say ‘yes’. You are, in this sense, free to turn down a contract provided you have alternatives. If your alternative to signing a declaration passing all of your property to me for a glass of water (while on the verge of collapse in a desert) is dehydration and death, then such a contract is hardly an example of voluntary, free trade. In short, you must have alternatives before your choice can be declared free. And since what constitutes a reasonable feasible set of alternative options (prior to agreeing or not to an offer) is a highly contested terrain, proclaiming that the CDSs of Greek debt should not trigger now (following the Greek haircut) is philosophically equivalent to proclaiming the labour contract and patriarchal relations between men and women to be free and fair.

And here lies the irony: It took the euro crisis to put bankers in the shoes of radical activists who, quite rightly, have been protesting for yonks that the worst forms of slavery is that which one consents to.

Note: The above line of argument is a simplification of a number of papers written some time ago. For an example see a 1995 paper, published in Science & Society, and entitled Freedom within Reason. See also a response to a critique of this paper entitled Reason without Freedom.