I would like to ask some questions on the latest developments about the debt crisis in Greece. We hear that Greece "may default". What does exactly "default" means? Is it failure to pay, is it bankruptcy? And what are the real implications if a country goes "bankrupt"?
Furthermore, the who are the CDS protection sellers? What will happen to them?
I do not see how a sovereign state can go through bankruptcy. It could, however, default (stop paying debts) and even try to renegotiate debt.
They would be required to pay the difference between expected and actual payments.
I do not see what is the hoopla about CDS sellers in this instance. Greece was fraudulently concealing its budget deficit and was a profligate spender of money. Now it has to face the music. I cannot see how one could blame credit default swap sellers for this unfortunately bad policy.
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Default means to stop making the scheduled payments on the country's dept.
What is a "CDS prtection seller"?
CDS = Credit Default Swaps.
Think of the CDS s a side bet. If the bond issuer defaults the original CDS seller has to make good on the debt. If the CDS seller can't then he becomes like AIG.
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