Wall Street Journal
October 25, 2011
As markets await The Plan that was the result of this past weekend’s European Summit To Have a Plan To Have a Plan, one of the unknowns is the degree to which banks and other private investors will have to accept a bigger “haircut” on Greek debt and take a loss on some of the money they have loaned the country.
Reports suggest the haircut could be in the 40% to 50% range, or maybe as high as 60%. That’s a much bigger loss than 21% bite banks had already agreed to back in July.
This highlights one of the most farcical elements of the current Greek bond market tragedy. Even though investors aren’t going to be paid back in full, according to the technical rules of the credit default swaps market Greece has not defaulted on its debt.
This theory relies on the fiction that these haircuts have been voluntary.
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