Here's The Deal

Posted by Nogger - a legend in his own mind at 09:05 | Categorized as

16/01/12 -- I've been reading the papers over the weekend and trying to weigh up the likelihood of a Greek debt default. There's more to this 50% "haircut" that they are asking bondholders to take than initially meets the eye.

It seems that the gist of it is this if you are unlucky enough to own say EUR1000 of Greek debt: you agree that half your money is lost, the other EUR500 will be repaid in the form of EUR150 cash (that's the good bit, if you can call 15% "good") and the remaining EUR350 will come as a nice shiny new bond to be (hopefully) repaid at some time in the future by the same guy who's already defaulted on you.

Now if that EUR1000 debt is currently showing up as an asset on your balance sheet you probably aren't going to take too kindly to that proposal are you? Especially as you now that this guy owes money all over town, some of it to people that also owe money to you.

So what's the alternative? Keep your EUR1000 "asset" (the expression toxic debt is so vulgar isn't it) and hope that some other idiot (like the IMF, say) comes along and loans this guy enough money to pay you back. OK, let's run with that....