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Unformatted text preview: 5.2 118.1 131.9 125.0 169.9 185.6 138.8 198.6 280.1 145.0 201.1 270.8 Greece, and Spain—must be seriously debating and perhaps romanticizing the idea of controlling their own destinies with their own currency. However, no exit mechanism exists for leaving the euro. The current European plan for Greece is to persuade its creditors to write down 50% of the value of its bonds. Surely, the other countries have to be thinking they would like the same deal. Meanwhile, a 50% writedown hardly seems adequate given that the entire Greek treasury curve is trading at less than 40 cents on the dollar. Not unlike with the subprime market and its role in precipitating the financial crisis in 2008, the sovereign debt markets have similar potential. Sovereign debt was treated as having zero risk by the banks of Europe. As such, there is a tremendous amount of bank exposure and related counterparty risk. Once again we are seeing the rule of law subverted, specifically as it relates to credit default swaps...
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This note was uploaded on 02/11/2013 for the course MGMT 231 taught by Professor Yu during the Spring '13 term at Bauder.

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