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I just read this Duke law paper[1] saying that in 2012 Greek creditors took a 64% haircut. I had not realized they had received such debt relief already. From

by hughw 11y ago

I just read this Duke law paper[1] saying that in 2012 Greek creditors took a 64% haircut. I had not realized they had received such debt relief already. From the report: "Within the class of high- and middle-income countries, only three restructuring cases were harsher on private creditors: Iraq in 2006 (91%), Argentina in 2005 (76%) and Serbia and Montenegro in 2004 (71%). There are a number of cases of highly indebted poor countries, such as Yemen, Bolivia, and Guyana, that imposed higher losses on their private creditors. However, the Greek haircut exceeds those imposed in the Brady deals of the 1990s (the highest was Peru 1997, with 64 per cent), and it is also higher than Russia’s coercive 2000 exchange (51%)....the 2012 Greek exchange was exceptional in size, exceeding the next largest sovereign credit event in modern history, which to our knowledge wasRussia’s default on 1.7 billion British pounds in 1918, equivalent to just under 100 billion in 2011 Euros. The Greek exchange also easily surpasses the German default of 1932-33, the largest depression-era default on foreign bonds, comprising 2.2bn US$ at the time, or approximately 26 billion in 2011 Euros." [1] http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=5343&context=faculty_scholarship http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=...

deleted 11y ago
[deleted]
zaroth 11y ago
TFA is arguing the private creditors got off far too easily. Having made the loans of their own accord, pocketing the interest payments up to that point, you can be sure the private creditors were quite happy to have the debt off their hands in 2012. This is the largest transfer from private credit to public credit in history, right? These are the same loans Greece is now actually completely unable to service. The paper talks about creditors taking haircuts, but then in the next paragraph that this resulted in very little actual debt relief for Greece? If private credits really had to absorb 50% haircuts on $100 billion of debt, point me to the massive string of bankruptcies? If I understand correctly, the "haircuts" are projections based on net present value using some arbitrary high discount rates (the paper mentions 9% !!!) so you have to appreciate that with a different discount rate you could claim the private debt holders were actually being paid even > 100 cents on the dollar. Using this 5 per cent discount rate to compare old and proposed new debt flows, the debt relief implied by the July 2011 financing offer would have been approximately zero – indeed, slightly negative. Using the “risk free” discount rate of about 3.5 per cent (not shown in the table), would indicate an *increase* of Greece’s debt burden by about 11-15 per cent [over] the July 2011. That's from your quoted article! Doesn't sound like such a great haircut to me... Any time private banks are being bailed out, I'm going to assume that they are being well enriched in the process. Just the way of the world. People will just play with the numbers to suit a given narrative, so it's hard to even find a "truth" in all this. A 9% discount rate for sovereign debt is insane though. Almost any NPV analysis is going to look like shit against a 9% discount. EDIT: I read further down into the paper, and the actual discount rates used to arrive at the "59 - 64%" haircut range for the 2012 restructuring were 15.3% - 18.7%. Just WOW. So, yes, creditors were NOT paid the full NPV on over a hundred billion of dollars of debt being carried through maturity at rates higher than my credit cards. This should surprise exactly no one.
- derriz 11y ago
  I don't think you understand NVP and debt. You seem to be suggesting Greek debt be discounted at something close to the risk free rate? These discount rates are correct. The value of a promise of future cash payments from the Greek government is worth far less than one from the US or German governments for example. If you actually believe that Greek debt should be discounted much less, I'll happily swap any amount of (say 10 year) Greek bonds with you if you give me the equivalent face value of 10 year US treasuries or German bunds. Since you think the NVP should be similar, you should be happy to take the deal.
  - tomp 11y ago
    If you can expect to be bailed outif the debtor defaults, then yes, you should use the risk free rate for discounting.
    - derriz 11y ago
      Nope - haircuts are calculated relative to current asset values. For example, when discussing the haircut on a 100m greek bond that's currently trading for 60m, giving the holder 60m for it does not constitute a 40% haircut.
Atropos 11y ago
Greece supporters do not seem to care about facts at all. Same for the GDP numbers, they always use the graph from 2008, whereas the graph from 1999 is much more enlightening: https://twitter.com/jmackin2/status/615576571890565121 https://twitter.com/jmackin2/status/615576571890565121 Even in the boom years, the numbers of Greek patents granted per year is ridiculously low, the number of Greek universities in the worlds top-500 is ridiculously low and Greece's rank in the world banks Doing Business report is still the worst of any OECD country - after 5 years of "reforms"!
nhaehnle 11y ago
That's a good point, actually. There was a fairly generous haircut, and if the Greek economy had been allowed to grow from that point on, we wouldn't be in the mess we're in now. As I see it, the problem was that the troika followed fairy-tale economics, forcing the obviously flawed doctrine of "expansionary austerity" onto Greece. In a large part, this was probably motivated by the desire to set a harsh example as a threat to other countries who might follow in Greece's footsteps. Of course, "expansionary austerity" cannot work, and it especially cannot work inside a currency union, and so Greece's economy declined even further, making also the remaining debts unsustainable despite the haircut.

by hughw 11y ago

deleted 11y ago

[deleted]

zaroth 11y ago

TFA is arguing the private creditors got off far too easily. Having made the loans of their own accord, pocketing the interest payments up to that point, you can be sure the private creditors were quite happy to have the debt off their hands in 2012. This is the largest transfer from private credit to public credit in history, right? These are the same loans Greece is now actually completely unable to service. The paper talks about creditors taking haircuts, but then in the next paragraph that this resulted in very little actual debt relief for Greece? If private credits really had to absorb 50% haircuts on $100 billion of debt, point me to the massive string of bankruptcies? If I understand correctly, the "haircuts" are projections based on net present value using some arbitrary high discount rates (the paper mentions 9% !!!) so you have to appreciate that with a different discount rate you could claim the private debt holders were actually being paid even > 100 cents on the dollar. Using this 5 per cent discount rate to compare old and proposed new debt flows, the debt relief implied by the July 2011 financing offer would have been approximately zero – indeed, slightly negative. Using the “risk free” discount rate of about 3.5 per cent (not shown in the table), would indicate an *increase* of Greece’s debt burden by about 11-15 per cent [over] the July 2011. That's from your quoted article! Doesn't sound like such a great haircut to me... Any time private banks are being bailed out, I'm going to assume that they are being well enriched in the process. Just the way of the world. People will just play with the numbers to suit a given narrative, so it's hard to even find a "truth" in all this. A 9% discount rate for sovereign debt is insane though. Almost any NPV analysis is going to look like shit against a 9% discount. EDIT: I read further down into the paper, and the actual discount rates used to arrive at the "59 - 64%" haircut range for the 2012 restructuring were 15.3% - 18.7%. Just WOW. So, yes, creditors were NOT paid the full NPV on over a hundred billion of dollars of debt being carried through maturity at rates higher than my credit cards. This should surprise exactly no one.

derriz 11y ago
I don't think you understand NVP and debt. You seem to be suggesting Greek debt be discounted at something close to the risk free rate? These discount rates are correct. The value of a promise of future cash payments from the Greek government is worth far less than one from the US or German governments for example. If you actually believe that Greek debt should be discounted much less, I'll happily swap any amount of (say 10 year) Greek bonds with you if you give me the equivalent face value of 10 year US treasuries or German bunds. Since you think the NVP should be similar, you should be happy to take the deal.
- tomp 11y ago
  If you can expect to be bailed outif the debtor defaults, then yes, you should use the risk free rate for discounting.
  - derriz 11y ago
    Nope - haircuts are calculated relative to current asset values. For example, when discussing the haircut on a 100m greek bond that's currently trading for 60m, giving the holder 60m for it does not constitute a 40% haircut.

Atropos 11y ago

Greece supporters do not seem to care about facts at all. Same for the GDP numbers, they always use the graph from 2008, whereas the graph from 1999 is much more enlightening: https://twitter.com/jmackin2/status/615576571890565121 https://twitter.com/jmackin2/status/615576571890565121 Even in the boom years, the numbers of Greek patents granted per year is ridiculously low, the number of Greek universities in the worlds top-500 is ridiculously low and Greece's rank in the world banks Doing Business report is still the worst of any OECD country - after 5 years of "reforms"!

nhaehnle 11y ago

That's a good point, actually. There was a fairly generous haircut, and if the Greek economy had been allowed to grow from that point on, we wouldn't be in the mess we're in now. As I see it, the problem was that the troika followed fairy-tale economics, forcing the obviously flawed doctrine of "expansionary austerity" onto Greece. In a large part, this was probably motivated by the desire to set a harsh example as a threat to other countries who might follow in Greece's footsteps. Of course, "expansionary austerity" cannot work, and it especially cannot work inside a currency union, and so Greece's economy declined even further, making also the remaining debts unsustainable despite the haircut.