AS GREECE flirts with disaster and several other European
countries buckle under heavy debts, creditors’ experience with Argentina should
serve as a sobering reminder about the mess that can follow a sovereign
default. A decade after the Latin American country welshed on $81 billion,
disgruntled creditors are still chasing their money. The litigation, and
Argentina’s defiance in the face of judgments against it, complicate its plans
to return to international capital markets.
Argentina’s default, after a severe economic crisis, sparked
social unrest and runs on banks. It subsequently presented creditors with a
take-it-or-leave-it offer of 35 cents on the dollar. They considered this
derisory: previously, delinquent countries had typically paid 50-60 cents. But
the government stood firm and roughly three-quarters of the bondholders took
part in a debt exchange in 2005. More joined in 2010, bringing the total to
93%...
http://www.economist.com/node/21533453
The ECB may be putting the interests of the few banks that
have written credit-default swaps before those of Greece, Europe's taxpayers,
and creditors
In the old days – think of the 1980s Latin American debt
crisis – one could get creditors, mostly large banks, in a small room, and
hammer out a deal, aided by some cajoling, or even arm-twisting, by governments
and regulators eager for things to go smoothly. But, with the advent of debt
securitisation, creditors have become far more numerous, and include hedge
funds and other investors over whom regulators and governments have little
sway.
Moreover, "innovation" in financial markets has
made it possible for securities owners to be insured, meaning that they have a
seat at the table, but no "skin in the game". They do have interests:
they want to collect on their insurance, and that means that the restructuring
must be a "credit event" – tantamount to a default. The ECB's
insistence on "voluntary" restructuring – that is, avoidance of a
credit event – has placed the two sides at loggerheads. The irony is that the
regulators have allowed the creation of this dysfunctional system…
http://www.guardian.co.uk/business/economics-blog/2012/feb/06/european-central-bank-greek-debt
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Now that the Super Bowl is over there may be no better time
to focus some attention on the continuing Greek tragedy that is unfolding over
in the economic Twilight Zone, known as the Eurozone.
There is a growing sense that Americans, somewhat exhausted
after a decade of foreign wars and international conflict, have grown
increasingly isolationist in their worldview.
That may be a good thing to a certain extent. The United
States cannot continue to pay the price of maintaining the planet’s police
force.
While other nations concentrate that portion of its gross
national product to strengthening its industrial base, quality of life and
economy – think Germany – that would otherwise go to defense spending if it
were not for the United States, our nation continues to wallow in an economic
tar pit.
Just when our nation’s economy cheers up a bit, things
threaten to get worse quickly.
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I’ve read it several times and gain more insights every time
I read it…
AS GREECE flirts with disaster and several other European
countries buckle under heavy debts, creditors’ experience with Argentina should
serve as a sobering reminder about the mess that can follow a sovereign
default. A decade after the Latin American country welshed on $81 billion,
disgruntled creditors are still chasing their money. The litigation, and
Argentina’s defiance in the face of judgments against it, complicate its plans
to return to international capital markets.
Argentina’s default, after a severe economic crisis, sparked
social unrest and runs on banks. It subsequently presented creditors with a
take-it-or-leave-it offer of 35 cents on the dollar. They considered this
derisory: previously, delinquent countries had typically paid 50-60 cents. But
the government stood firm and roughly three-quarters of the bondholders took
part in a debt exchange in 2005. More joined in 2010, bringing the total to
93%...
http://www.economist.com/node/21533453
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