For now, the most interesting aspect of the Greek bailout has been President Obama’s audacious lobbying in favor of it. He has become deeply involved in what is essentially an internal matter of the EU – demanding bailouts from Germany and lecturing Greece on fiscal responsibility. Aside from a penchant for irony, the President of the most indebted government on Earth is likely motivated by fear of a real-life sovereign default making headlines. By encouraging Europe to bail out holders of Greek and Portuguese debt, Obama hopes our creditors will sleep soundly as well.
Had Greece been allowed to restructure, bondholders would have been forced to absorb real losses from a developed country for the first time in recent memory. That would have accelerated the current debate on sovereign debt, and led some investors to reevaluate all of their holdings. The last thing Washington wants is for holders of Treasuries to start taking a critical eye to its balance sheet. Under such scrutiny, global creditors might correctly conclude that it’s all Greek to them, and rerate our debt accordingly.
Related: ProShares UltraShort 20+ Year Trea (ETF) (Public, NYSE:TBT) and iShares Lehman 20+ Year Treas.Bond (ETF) (Public, NYSE:TLT)
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