Years ago, my children attended a private Jewish school in New York. As it was a community Jewish school, the school had support programs for children whose parents could not afford the $20k+ tuition.
In a conversation with the school director about the structure of the scholarship program, she explained to me that they distinguish between “cash” problems and “cash flow” problems, or what those of us in the business world would call “income” vs “cash flow.”. For those who, in general, can afford the school, but don’t have cash in hand now, “cash flow” problems, the school would simply arrange a payment schedule (essentially an unofficial loan) on the director’s independent authority. For those with “cash” (i.e. income) issues, a loan obviously won’t help, and they apply for a scholarship.
I was reminded of this conversation by the front page article on Greece’s debt woes in today’s WSJ Europe. Last year, when the EU countries arranged a $160+ BN loan, I was skeptical. After all, Greece didn’t have a cash flow problem – enough income to pay its obligations tomorrow, but not today – it had an income problem – it was spending far more than it had coming in. For that, no amount of loan will help.
Today, they are talking about a “loan exchange”, which is a nicer way of saying restructuring, itself a nicer way to say bankruptcy protection. Unfortunately, though, even this won’t help. Until Greece’s income meets or exceeds its ongoing expenses, a loan, or exchange, or even bankruptcy, is just financial engineering to delay the day of reckoning.