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Unformatted text preview: 5.2
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.
- Spring '13
- The Lottery