Comments on: Is it harder to borrow after you’ve defaulted? http://blogs.reuters.com/felix-salmon/2009/04/05/is-it-harder-to-borrow-after-youve-defaulted/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Gabriel http://blogs.reuters.com/felix-salmon/2009/04/05/is-it-harder-to-borrow-after-youve-defaulted/comment-page-1/#comment-126 Mon, 06 Apr 2009 00:32:05 +0000 http://blogs.reuters.com/felix-salmon/2009/04/05/is-it-harder-to-borrow-after-youve-defaulted/#comment-126 If defaulting carried no costs then everyone would do it. Why pay your debt otherwise?

]]>
By: OneEyedMan http://blogs.reuters.com/felix-salmon/2009/04/05/is-it-harder-to-borrow-after-youve-defaulted/comment-page-1/#comment-125 Mon, 06 Apr 2009 00:23:27 +0000 http://blogs.reuters.com/felix-salmon/2009/04/05/is-it-harder-to-borrow-after-youve-defaulted/#comment-125 The change in Moodys policy may just be to bring their definition of default in line with the one used by ISDA for triggering credit default swaps. That’s an alignment we should want, because it allows better comparisons of the information they deliver.

“My feeling is that the capital markets have no morals. All they care about is the chance that you will default in the future, not whether or not you’ve defaulted in the past. Indeed, I remember at one point that Colombia complained regularly that it was being punished for never having defaulted: all the other Latin nations had defaulted, and therefore had lower debt burdens, after renegotiating their debt under the Brady Plan.”

This isn’t a moral issue. If you have less outstanding debt, even after a bankruptcy discharges it, then you are immediately less likely to default. However, in comparison with another firm that doesn’t default, if at some future date you have the same financials, expect the debt markets to charge you more to borrow money. That’s how the UK was able to beat up France time and again. By not defaulting on their debt they had lower borrow costs so they borrowed more. Borrowing more funded bigger wars.

]]>