Comment by joe_the_user | Hacker News Reader

Comment by joe_the_user | Hacker News Reader

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Wait a gosh-darn-second - if the situation is either definite default OR not-a-default, then Greece has NOT defaulted.

From the article: if you’re a holder of Greek bonds right now, you have three choices... 1. You can do nothing, and hope that Greece pays you in full and on time. (and other stuff)... The first option is by far the most interesting. No one has come out and said that Greece is going to default on bondholders who don’t exchange their bonds;

IE, the aim is to threaten and arm-twisted big banks into exchanging their bonds without any formal default happening. If we're going by a "gold standard", when Greece actually misses a payment on its bonds, then it will have defaulted. Until then, this is negotiation.

Further from the article: "Is it possible for other bondholders — those who haven’t had their arms twisted — to free-ride on the back of this deal and continue to get paid in full? I suspect that it probably is. Which is one reason why this Greek restructuring won’t be the last."

Again, nothing has happen to the non-big-bank holders. Indeed, they get a convenient free-ride.

The ratings agencies have said that arm-twisting bondholders to accept new bonds with less favourable conditions amounts to a default.

I promise to pay you $100 tomorrow. I then tell you you'll get your money in 30 years and at a much lower interest rate. That's breaking the original promise, even though I haven't actually 'not paid you back'.

You don't have to except the deal, the only reason to do so is fear that they bail out on you later. So I'd say that if it's binary, this is not a default.

I don't think it's a default in that example until tomorrow comes and I fail to hand over the $100. Until then we're just negotiating and speculating about whether I will or won't hand it over.

i think this is a situation where words are kind of hiding what really matters. what people care about when it comes to 'default' is how this effects the debtors ability to pay in the future and renegotiating debt is a sign that someone may be less able to pay in the future compared to someone that continues to make payments normally.

Then people with an interest in Greece defaulting will buy a small amount of all the short-term debt they can find, and play hardball as it comes due.

The question is whether this is arm-wrestling.

A way to describe what is happens is that the EU says "we know some people are worried about the money Greece owns them. For them, we offer insurance. We have several pricing schemes for that assurance:..."

Phrasing it that way would IMO put some spin on it, but it would not be a bland lie, either.

I think they stroke a good balance here. It is not arm-wrestling, but they likely will reach the intended goals (decrease immediate pressure on Greece, and show the world that the EU will help countries in trouble)

Again, you can call X "effective default" or say X "amounts to default" all you want and I wouldn't argue with your definition. But since the OP called default an absolute binary, then if we want that, we have to wait till we have literal default. IE, what I tell you doesn't matter, we have to wait till it is tomorrow and I haven't paid.

The point is that in an "effective default", there's no violation of any explicit contract however much the loaning parties may have lost confidence. IE, if Greece was home-owner renegotiating its mortgage, there is no point where the bank can go to court and demand the house (though against sovereign nation, banks, of course, have no such recourse but its considered important, I believe).

Sure. I was saying that the important point is that the _ratings agencies_ call it a default. Your and my (and the OP's) definition isn't important. If they think it's a default then for a percentage of the world (who need ratings agencies' support), it's binary-on.

Another agency, the ISDA, says it's _not_ a default for the purposes of a CDS trigger. That, for another percentage of the population, is binary-off. http://blogs.reuters.com/felix-salmon/2011/07/22/the-cds-mar...

"the aim is to threaten and arm-twisted big banks into exchanging their bonds"

You're basically saying that Greece renegotiated some of it's debt obligations. Which is a default.

"Sovereign defaults Sovereign borrowers such as nation-states generally are not subject to bankruptcy courts in their own jurisdiction, and thus may be able to default without legal consequences. One example is with North Korea, which in 1987 defaulted on some of its loans. In such cases, the defaulting country and the creditor are more likely to renegotiate the interest rate, length of the loan, or the principal payments."

http://en.wikipedia.org/wiki/Default_(finance)#Sovereign_def...

Maybe it would've been nicer if we just said "deep shit" instead of "default." When you owe the bank a million dollars, the bank owns you, but when you owe the bank a trillion dollars, you own the bank.

Greece knows that there are lots of important people who are overexposed. It knows that if it does the wrong thing, it could trigger a run on its creditors that is akin to what happened to Lehman. It doesn't want to be the bad guy necessarily, who does? But its finances are untenable.

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