FINANCIAL TIMES: The lead negotiator for private holders of Greek debt has said that investors are unwilling to accept greater losses on their bonds than the 21 per cent agreed in July, jeopardising eurozone plans to finalise a second Greek bail-out by the end of next week….
Securing a voluntary “haircut” from Greek bondholders has been the centrepiece of the second €109bn ($150bn) Greek bail-out after a German-led group of creditor countries demanded private investors bear more of the rescue burden so eurozone taxpayers would not be saddled with the entire bill, as in previous bail-outs…
But a group led by France and the European Central Bank has insisted that any new “haircut” must be voluntary, since forced writedowns would constitute a full-scale Greek default, triggering insurance policies, known as credit default swaps, and potentially reigniting investor panic. .. (more)
EDITOR: Until this article, we did not fully understand what was going on concerning potential sovereign debt default. The bond holders, mostly European banks, are accepting a 21% loss in return for guaranteed payment. The issue is should they take an even bigger loss. However, an actual default would trigger insurance coverage on the debt and result in unknown and immeasurable danger to the world banking system.
American banks are also in danger because of their investments in the infamous derivatives that are used to guarantee the aforementioned debt.
