Word: defaulting
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Dates: during 1980-1989
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While that kind of pyramiding sounds ominous to some, Citicorp's Wriston contends that the chances of default by a major country are "zero." A nation that defaulted, he persuasively argues, would cut itself off from the world monetary system and be unable to finance essential imports. Felix Rohatyn, a partner in New York's Lazard Frères investment banking firm, disagrees. Says...
...illusion to think that no sovereign country will default on its external debt because it would become a pariah in the international financial community. A repudiation of debt could occur as a result of radical political changes, as is possible in lit erally any Latin American country, or geopolitical decisions, as might be the case in Eastern Europe...
High interest rates have been the company's biggest headache. With consumer demand weak, and unsold Wurlitzers gathering dust in warehouses, the company has had to borrow heavily to finance its inventories, driving up total debt to a current level of $24.5 million. Last autumn, the firm defaulted on a restructuring agreement involving $30 million worth of debt obligations with its major creditor, the First National Bank of Chicago. Meanwhile, Wurlitzer's net worth has shriveled to about $20.7 million, and bankers worry whether there would be very much to recover if the company were to default again...
...into Government safety nets. Steffen, for instance, took out a $19,500 federal loan last spring, using his corn crop as collateral. Back then the collateral was appraised by Washington at $3.15 per bu.; today Steffen's local grain elevator is paying just $1.99 for corn. Steffen may default on the loan, effectively selling his corn to the U.S. Government for a dollar more than anyone else would pay for it. Tens of thousands of farmers are expected to do the same this year, without stigma, although the Government already has 7 million tons of forfeited grain stashed away...
Greenspan was afraid that domestic politics might eventually compel an economically struggling borrower to default on all its loans, encouraging other countries to follow suit. That, in turn, would confront Western finance officials with a cruel choice. On the one hand, the lenders could wipe the worthless loans off their books and invite a worldwide financial contraction because of dwindling monetary reserves. On the other hand, central banks could attempt to avoid such a massive depression by buying up the defaulted loans. That would keep the international financial system functioning, but it would also cause a wild new burst...