Article 5X3MV Probable Russian debt default unlikely to cause a global financial earthquake | Nils Pratley

Probable Russian debt default unlikely to cause a global financial earthquake | Nils Pratley

by
Nils Pratley
from Economics | The Guardian on (#5X3MV)

While in theory a possible default sounds like a major financial event experts remain relaxed

A Russian debt default, the first stage of which could arrive as soon as this week, sounds, in theory, like a major financial event. After all, the last time Russia defaulted - indeed, the only other time since the Bolshevik revolution more than a century ago - was 1998 and chaos was a genuine possibility.

Long-Term Capital Management, an enormous and already-ailing hedge fund, couldn't handle the explosion in volatility and the general flight to safety in financial markets. Within a few weeks, the US Federal Reserve had to strong-arm 14 Wall Street banks into agreeing a $3.6bn bailout of LTCM to prevent a wider meltdown. The Fed was probably right to fear contagion: LTCM was absurdly over-extended via leverage, and half of Wall Street was over-extended to it.

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