Odious Sovereign Debt

MirrorField asks, with regard to Author’s Note: Sovereign Debt:

If this is the case, I’m left to wonder on their opinion on the concept of “odious debt”, ie. debt incurred by government *not* representative of it’s constituents. Basically, do the eldrae believe that it’s a-ok to hold joe average responsible for debts run up by government he didn’t support (and possibly actively worked against)? Or is it a simple credit risk associated with lending to dictators? Or would they simply consider members of said regime *personally* liable for debts thus incurred? Inquiring minds want to know…

Well, the first thing to note at this point is that *there* , the concepts of what one might consider a legitimate government are somewhat different to begin with.

For the Worlds in general, as I mention in today’s out-of-order trope-a-day People’s Republic of Tyranny, unlike Earth, there is no general consensus in favor of representative democracy. (And, heck, the Accord has members for whom the entire concept would be meaningless – hive minds, say, in which The Man would have The Vote – or would need a lot of revision – sophonts with specialized castes, like those of many Earth insects, in which all sophs are definitely not created equal and some subcastes may not even be sophont.)

Now, where the eldrae, the Empire, and the Directorate of Gilea & Company in particular are concerned, the thing to remember is that they’re libertists, and pretty hard-core ones by our standards. So far as they’re concerned, governmental legitimacy can only come from the unanimous consent of the governed, not the “representative consent of the governed”, or the “implicit consent of the governed”, or whatever other excuse one might cobble together. That’s what defines a Society of Consent. All other forms of government are necessarily based on the coercion of the unwilling, and therefore korasmóníë, “force-states”, all of which are mighty obnoxious in the sight of the Freest of the Free.

Representativeness as we would define it, therefore, doesn’t exactly cut much ice with them. In an autocracy, one man is wearing the jackboots. In a democracy, >=(50%+1) men are wearing the jackboots. Neither of these cases is equivalent to an absence of jackboots, but both of them are suspiciously near-equivalent to a gang of nasty little slaving thugs who probably pull the wings off flies and engage in dubious sexual practices.

Now, on the specifics of odious debt, I suspect what matters to them is continuity. Recall, so far as they’re concerned, a government is just another type of business. If your revolution just happens to be a change in management, or a takeover that still lays claim to all the assets of the business – well, corporations don’t get to conveniently forget about their liabilities just because the shareholders fired the board for making deals they wouldn’t have approved of and replaced them. You don’t get to claim the assets, the name, the infrastructure, yadda yadda, without the liabilities that come attached to them. (Although we might be willing to talk about restructuring. Maybe. If it improves our chances of getting our money back.)

If, instead, it’s the equivalent of buying the company’s assets at the liquidation sale – well, fine, then, you don’t get the liabilities (they aren’t holding Joe Average responsible, you see; they’re holding the corporate governance responsible, in short). But you also aren’t necessarily the seniormost creditor in that liquidation – if the overthrown dictator borrowed a few billion exvals to spend on battlecruisers and palaces, and you don’t want to honor the loan under these circumstances, that’s fine, but you can’t have the battlecruisers and palaces either. We have a lien and a legitimate claim on the assets of the former regime. You can’t disavow the legitimacy of a transaction and simultaneously claim ownership of the assets that transaction paid for. That’s double-billing, and pretty odious double-billing at that.

This is, of course, arguably rather a harsh position to take – but should you point that out to them, the average Imperial will shrug and point out that:

(a) As long xenohistorical experience has taught them, The Revolution Was Not (Will Not Be) Civilized, and should this turn out to be the rare exception where the new regime isn’t a bunch of equivalent thugs wearing differently colored hats, someone will probably offer to help them out with their debts later on – and if they are, why exactly do they deserve a freebie?

(b) That in any case, there’s an established precedent for being oppressed, and it worked for them, and they are deeply cynical, therefore, about this supposed “lack of support” on the part of the many.

And finally:

(c) In any case, that loan is not the bank’s money to give away. It’s their customers’ money, their investors’ money, the people to whom they have a fiduciary responsibility, and it is absolutely not their place to decide to give away their customers’ money without their customers’ joint say-so. No matter who might claim otherwise.

(Every note, after all, has two ends – and that some governments are often happy to order the wiping out “odious debt” without so much as mentioning that the other end of that note is coming right out of a bunch of pension funds, small investors’ funds, etc., that don’t particularly deserve to be stiffed is another one of those things that the average Imperial would find headbangingly dishonest. If exactly what they’d expect from a korasmóníë.)

Author’s Note: Sovereign Debt

Having mentioned Gilea & Company’s policy on this, and even storified it, I should perhaps head off at the pass the inevitable someone pointing out that “sovereign debt doesn’t work that way”.

No, it doesn’t work that way here, where we are accustomed to extending a certain degree of trust and special privilege to governments.

There, on the other hand, the bankers behind Gilea & Company and other transstellar banking institutions which follow their lead are ideologically predisposed to not doing so, and would point to – to use Earth historical examples going forward in time – officially-sanctioned [commodity] currency debasement; massacring the Jewish bankers who lent you money to avoid repayment; defaulting on sovereign debt to private creditors because, well, what are they going to do and after all you are sovereign and can’t be compelled to honor your own deals1; inflating the currency to repay your debts with money which isn’t worth the money you lent them in the first place; and other such charming habits as evidence that the Sovereign Client Affairs department is, in fact, dealing with the shonkiest wide-boys on the block.

…as such, it behooves them to insist upon denomination hard currency that the client, specifically, doesn’t control, demanding significant collateral, and having a big stick handy (and visible) to deal with sovereign clients that fail to grasp that pacta sunt servanda, dammit, or else.

(It also helps in enforcement that the numbers on Gilea & Co.’s, and many other starcorporations, balance sheets & P&Ls are significant orders of magnitude bigger than many polities’ Gross System Products. Still, a few newcomers to the galactic system too impressed with their own sovereignty to realize that they’re actually going to be held to the obligations of their contracts get caught by this on a semi-regular basis, and thus become the instructive example for the next few would-be debtors.)

[1] ObWikipedia: “Since a sovereign government, by definition, controls its own affairs, it cannot be obliged to pay back its debt.”

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Debt Service

The golden room was already full of armor when the man in the shimmering papersilk suit stepped up to the podium.


”Thank you for attending this invitation to tender. I am Surian Cheraelar, Vice President of Special Collections for Gilea & Company. You all come highly recommended by our colleagues at Ultimate Argument Risk Control, and we look forward to working with those of you whose bids are ultimately selected.”

”I believe you all know General of the Wing mor-Raktas Venirek, of UARC, who will hold overall command of this campaign under our oversight. You will, of course, be at liberty to develop specific plans utilizing your own strengths to take your assigned objectives, but will answer to the General in matters of overall strategic coordination and operational conduct.”

”Detailed information is in the briefing books being handed out now, but to summarize, the government of the Calyet Guard is in default on loans provided to it by this bank of three-point-two trillion esteyn, and has elected to repudiate this debt.”

”Your task, therefore, is to distrain upon such governmental assets of the Guard as are necessary to collect the outstanding loan, interest, collection costs, and default charges.  We have identified a number of assets suitable for this purpose, primary among which are the state treasury hard currency reserves, stored at the capital on Calyet; the contents of certain governmental research facilities, located in the Calyet and Riyet systems, including the data stores; the antimatter storage and synthesis facilities orbiting Relnagat, in the Riyet system, including the fuel stockpile itself; and the Calyet Third Fleet, based out of the Loryet system.”

”I must emphasize that you are acting as contract enforcement in this matter and we may have further dealings with Calyet in the future. It is essential that collateral damage – and any freelance looting – and civilian injury must be kept to an absolute minimum in the course of this operation.”

”Likewise, minimal damage must be done to the assets in the course of obtaining them – which we recognize will be particularly difficult in the case of the Third Fleet, but such starships are only worth their prize value. This operation is being bid out as a fixed-price contract with incentives – and while you will see that we have made allowance for recovery damages, if additional assets are required to make up for unforeseen losses in recovery, those costs must be borne by the responsible party.”

”These are the essentials of the operation on which we’re asking you to bid. We’ll now take a short break to let you familiarize yourselves with the details, after which the General and I will take your questions. We look forward to seeing your proposals.”