[RedEyeJack]

“The bondholders NEED to take a sizeable hit here, in the interest of restoring mkt discipline. And so do the CDS owners. The moral here is: when you make a bad investment decision, YOU MUST LOSE SOME CAPITAL, otherwise — as we have seen for the past 4 years — moral hazard runs rampant.”

Of course, if you bought GM Bonds Obama would give you the ultimate haircut... a 100% loss on you bond investment so he could move the residual capital to the UAW pension fund... more like a decapitation than a haircut. Doesn't the constitution say something about the need for due process before you are deprived of property by the government... How's that working for you?

[SAJ]

Not comparable. The GM bond debacle was simple confiscation of private-market capital, no more and no less. Further, the GM bondholders (of whom my sister is one) had purchased instruments that were AA+ at the time of purchase and had paid their coupons reliably for years. Yes, GM **might well** have had to default or haircut some series of bonds, but they did not do so: Osamabama and his union cronies simply said, "Bonds? What bonds?"

Sovereign debt is an entirely different animal. Whereas GM and other corporate bond issuers must pay interest and ultimately principal by earning profits, sovereign debt is paid off (IF it's paid off) via taxation of citizens. And, in the Greek situation, bondholders (well, the sane ones at any rate) understand that there is no chance at all that they'll be repaid in full. Both bondholders and would-be bond guarantors -- whether EMU, ECB, or individual members of EMU -- are only arguing over the level of haircut that will eventuate. No one is arguing for full repayment.