Taking a loss on Greek bonds

Private investors are being asked to accept big losses on their loans to Greece, in order for the country to get more bailout money and avoid a messy default that could send Europe back into crisis. Here, awoman walks by a sign showing a euro coin at a bank branch in Athens, on Jan. 31, 2012.

Jeremy Hobson: We're just a matter of hours away from the latest do-or-die deadline in Greece. This time, it's private investors who hold the key to the future. They're being asked to accept big losses on their loans to Greece, in order for Greece to get more bailout money and avoid a messy default that could send Europe back into crisis. So far, the word is more than two-thirds of the investors have signed on to take losses.

Marketplace's New York bureau chief Heidi Moore joins us live with more on this. Hi Heidi.

Heidi Moore: Hi Jeremy.

Hobson: So it sounds like this is coming down to who's going to take the loss?

Moore: Exactly. If you work with money, this is the whole thing -- you don't want to take a loss. And the Greek bondholders seem to have no choice. They are a bunch of banks and hedge funds, they hold Greek bonds and they are being forced to take a 75 percent loss compared to what they paid for those bonds. Meanwhile, the European Central Bank, which is sponsoring the bailout, is not taking any loss at all. So these bondholders are saying, 'This is not fair. We would like more of our money.' And the European officials and the Greek taxpayers are saying, 'You can lose 75 percent, or you can lose 100 percent.' So you're not getting your money back.

Hobson: It's the loss staring you in the face, but it's also sort of a question of fairness. Doesn't that sort of apply here in our country, as well, when it comes to, say, the housing market? Nobody wants to sell a house if they're going to get less than they paid for it.

Moore: Exactly, and the banks didn't want to get rid of the mortgage securities, because those are losses too. You see it time and time again, especially in 2008. If you remember our bailout -- those really great times that we had -- AIG owed a whole bunch of money to banks. And they couldn't pay it off, and the U.S. Treasury came in and made sure those banks were paid off. That was part of the bailout. To this day, Treasury is still taking a loss on those AIG contracts. So you know, you can see how reluctant people can be, to the extent of the government suffering. Now, on the bright side, at this point, we're demanding that banks take a loss. Back in 2008, we thought they'd go under if they did. So we are making some progress on the banks at least.

Hobson: Marketplace's New York bureau chief Heidi Moore. Thanks a lot.

Moore: Thank you.

About the author

Heidi N. Moore is The Guardian's U.S. finance and economics editor. She was formerly the New York bureau chief and Wall Street correspondent for Marketplace.

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