“Greece to withhold E300 million loan repayment” (Financial Times lead headline today). I am shocked, shocked to find that default is going on in Rick’s Sovereign Debt Café!
A week ago, the FT helpfully provided an instructive table of the huge losses, or “haircuts,” taken by the credulous bondholders in a dozen sovereign debt defaults during the last two decades alone. Here they are:
Haircuts on Sovereign Debt since 1998
- Argentina 77%
- Ecuador 38%
- Ethiopia 92%
- Greece (2012) 65%
- Guyana 91%
- Honduras 82%
- Keyna 46%
- Russia 51%
- Serbia 71%
- Seychelles 56%
- Tanzania 88%
- Ukraine (2000) 15%
Part of the definition of being sovereign is that you can refuse to pay your debts if you want to, which keeps posing, throughout history, a distinct problem for those who have lent money to governments.
The state of this problem has not advanced since 1933, when in the midst of massive defaults on sovereign debt, including the debts of principal European governments to the United States, Max Winkler wrote his marvelous book, “Foreign Bonds: An Autopsy.” “It is disheartening for investors,” wrote Winkler 82 years ago, “to discover that governmental default can be resorted to with impunity.” Indeed, in that same year of 1933 the government of the United States joined in and defaulted on its gold bonds with impunity. Winkler continues: “The history of government loans is really a history of government defaults…the past is easily forgotten and a new borrowing orgy ensues.” He concludes the book with a highly accurate prediction: “Defaults will not be eliminated. Investors will be found gazing sadly and drearily upon foreign promises to pay.” As they are again today.
from AEI » Latest Content http://ift.tt/1H9tzpB
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