Standard and Poors downgraded Greece's already far from sterling BBB credit rating three notches yesterday. Call it what you will -- re-profiling, restructuring, a haircut, default -- the odds that it will happen are rising.
Although bankers and many government officials argue that re-structuring Greece's debt would be the European equivalent of the Lehman Brothers' default, remember that the same arguments were made back in the 1980's when the Latin American debt crisis flourished. By the end of that decade, Brady Bonds were commonplace, a secondary market in trading the re-structured Latin American debt obligations had been born, and banks absorbed the write-offs the debt forgiveness entailed without sending the financial system into a tailspin.
Although bankers and many government officials argue that re-structuring Greece's debt would be the European equivalent of the Lehman Brothers' default, remember that the same arguments were made back in the 1980's when the Latin American debt crisis flourished. By the end of that decade, Brady Bonds were commonplace, a secondary market in trading the re-structured Latin American debt obligations had been born, and banks absorbed the write-offs the debt forgiveness entailed without sending the financial system into a tailspin.
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