The Bloomberg article of November 7, 2019, on the need for the Rich to get a Haircut (in Lebanon), is pertinent in both its take and approach. But one needs to imagine a more probable (not unique) scenario for a drastic plan to overcome the daunting crisis facing the country.

At the outset, one must state that any economic solution without the eradication of the phenomenon of a State (Hezbollah-led Lebanon) within a State (official Lebanon) is doomed to fail. No regional or foreign investor, no regional or international institutions, bank, fund, or monetary authority would lend any assistance to a State when its sovereignty is held hostage by a paramilitary organization blacklisted by the regional (except for Iran, Syria and Iraq) and the international (community).

Now, a short historical background seems necessary. Since the early 1990s at the start of the post-war reconstruction era, a diabolical alliance was forged. The deal included a group of Warlords (names known) and carpetbaggers (also well known). The PM would ‘play’ a nominal political role but instead concentrate on the reconstruction projects. Those landed at majority into the lap of a close circle of cronies and beneficiaries. In turn, the rest of the political class would ‘play nice’ and not disturb this scheme as long as its share of the spoils was secured. A significant ‘cut’ for the Syrian Godfather (to fund the security apparatus and the individuals in charge) made this compromise viable and ensured its durability.

However, there were not enough revenues to go around so new public projects were ‘fabricated’ by the infamous CDR and other governmental agencies in term of infrastructure contracts (roads, bridges & tunnels), rehabilitation of the power grid (deliberately keeping it inept and fuel-based so technical theft and imports could go on), with certain cash cows farmed out to specific politicos.

From the womb of this Unholy Alliance emerged a triumvirate emerged and it comprised: (i) the BDL/Government : issuing public debt at unsustainable levels to fund the engrossed budget and finance overpriced projects, (ii) the Banks: taking people’s deposits (from locals and Diaspora alike) and subscribing the bulk into Treasury Bills and Bonds; and (iii) the Security apparatus: the Syrian security services and their Lebanese counterparts which were ‘bribed’ through huge salaries, outrageous perks, outsized retirement benefits, etc.., in order to ‘protect’ this politico-economic cabal. After the Syrian Anschluss ended in 2005, came the Iranian dominion, at first contained in 2008 and in full swing since 2016, attempting to resuscitate that nefarious compromise, with almost the same actors. This time around though, the funds that fueled the deal came wanting and the whole charade unraveled in a tragic manner.

Focusing on the present crisis would require an insightful look into the first two protagonists: the BDL/Government and the Banks. The BDL/Government has borrowed from banks c.$100 bln and cannot repay. So, what to do? The BDL/Government should notify the Banks that it is incapable to return 1/3 of it (or c.$33.33 bln) but in exchange will offer them a 30 years tax holiday on profits and dividends. Over 30 years this would amount to $3 bln per annum. Banks would in turn inform depositors holding sums above a certain threshold, and who have benefited from junk bond-style interest over the years, that 33.33% of their deposits will not be repaid. They would rather convert into banks’ equity thus strengthening the capital base of the sector. This debt-to-shares swap would come with the commitment of a buy back or a liquidity event in future years. To work, this plan would necessarily require a merger between the 52 existing banks to become 15 or 20 if not less, and serious changes in their leadership teams.

The other 1/3 of the BDL/Government debt should be transferred to a newly formed, tightly managed,