Private Bondholders asked to lose 53.5% of their Holdings in new Greek Bailout Agreement

Posted by PITHOCRATES - February 26th, 2012

Week in Review

Be thankful you don’t have any Greek bonds.  If you do you have nothing to be thankful about (see Greece submits its debt cut offer posted 2/24/2012 on BBC News).

Under the proposed debt swap, banks and other private creditors are being asked to take a 53.5% loss on their Greek bonds.

Ouch.  If you had your retirement savings invested in Greek bonds you won’t be able to retire as planned.  Imagine that.  Say you had saved $250,000 and put it into some of the safest investments out there.  Government debt.  Because unlike private corporations they have the power to tax.  And will always be able to repay their debt.  Until now, that is.  Instead of getting your $250,000 back you’ll only get $116,750 back.  That’s a worse hit than homeowners took during the subprime mortgage crisis.  Even though their mortgages are underwater at least they have a chance of getting their lost value back.  Not these Greek bond holders.  Once this deal goes through they lose their money forever.  And 53.5% is a lot to lose.

Will this solve their problems?  Not unless they severely cut their government spending.  And with Greeks in the streets rioting that will be easier said than done.  Which means they will continue to spend.  Run deficits.  And borrow money.  Putting them right back on the road they’re trying to get off.  And just who is going to take a chance on buying Greek bonds when the current bondholders just lost 53.5% of their holdings?  Here’s a clue.  It won’t be as many who bought them before the 53.5% write-down.

This will not likely end the Eurozone debt crisis.

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