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Die Walkure

26 December 2017

In the second of my whimsical Christmas posts, some thoughts on Wotan and the rule of law.

As a frustrated lawyer and part-time Wagner fanatic I have always enjoyed the idea of the ring cycle as a parable on the importance of the rule of law.

 Wotan was doomed from the moment he reneged on the contract with the giants Fafner and Fasolt to build Valhalla (if Wotan had a good lawyer he could have argued that the contract was invalid under English law as the delivery of Fricka, the Goddess of love was not enforceable consideration under the Contracts (Rights of Third Parties) Act 1999. It is unclear from the opera if the contract was bound by English law, if a Goddess counts as a third party (English law is unusually silent on this point) and anyway Wotan, as a God, would not have had a good lawyer – they all work for the other side. But I digress.)

 The idea that Wotan needed someone to build Valhalla for him has always struck me as odd. Aren’t Gods omnipotent? Wagner’s Wotan clearly wasn’t, his supreme God was bound by a need for a third party – are the giants an allegory of the concept of faith? – to create the seat of his authority.

 A key theme of Die Walkure is the relationship of Wotan with, on the one hand his mortal son Siegmund, on the other hand his immortal daughter Brunnhilde, the eponymous Valkyrie, in particular whether either of them act independently of his will.

 These two themes, the ability of individuals to act independently of an omnipotent power and the importance of that

seemingly ‘omnipotent’ power actually being subject to the same constraints as us mortals (a cliché that is very rarely meant in a literal sense), are at the heart of the next few years of the financial crisis.

 Bank regulators have always had power, and discretion to act as they see fit. But they have also been bound to regulations in a much more literal sense than they are now. Bank regulators have to enforce rules. But the difference between closing down a bank who breaches a certain capital ratio and closing down a bank because you think they might breach a certain capital ratio is a difference of kind, not of degree. What does ‘point of non-viability’ mean? Whatever the banking supervisor choses it to mean.

Similarly, the ability to set aside contracts during the resolution process if it is in the wider interest of the resolution of the banking group. If you want a radically pessimistic prediction for the covered bond market, it is that a resolution authority will decide that it is able to intervene in a contract supporting a covered bond. 

12% over-collateralisation? 7% will suffice and the difference will help the issuer in resolution to continue as an on-going entity. You are still being paid interest and principal, so surely that isn’t a breach of the principle of no creditor worse off.

You can’t have Fricka as payment under the contract so have Alberich’s gold instead. It has equivalent value. 

An analogy too far? Perhaps. But it is the Christmas season so please indulge me.

 By Richard Kemmish



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