Ecuador Calls Debt "Illegitimate"
We have previously described risk as popcorn popping in a microwave. At first
the popcorn doesn't do anything, and it appears as though nothing is happening.
Then a kernel pops, but it appears to be an isolated event. Then another pops.
And another. And another. Eventually, the entire bag is full.
The failure of a major hedge fund last year was probably the first kernel popping.
Subprime mortgages? Pop! Venezuela? Pop! Commodities? Pop! Thailand?
Pop! More and more kernels seem to be popping, yet investors, judging by
emerging market debt spreads, don't appear to be the least bit concerned.
Another kernel popped today: Ecuador. According to Bloomberg News, Ecuador
today announced that its debt is "illegitimate" and may only repay 40% of it. (See
"Ecuador, Calling Debt 'Illegitimate', May Repay 40%", 1/18/07). Ecuadorian
government bond spreads widened by 135 basis points just today, according to
the article.
Some have argued that liquidity and leverage have removed the risks from the
financial markets. As another kernel of popcorn pops today, we remain
considerable skeptics of the “riskless market” theory.
Ecuador
Started by
Tor
, Jan 20 2007 11:35 AM
No replies to this topic
#1
Posted 20 January 2007 - 11:35 AM
Observer
The future is 90% present and 10% vision.
The future is 90% present and 10% vision.