|MATTHEW CRAFT and JOSHUA FREED, AP Business Writers|
If the deal holds and works, it will help prevent a potential shock to the world banking system. It will also remove one of the biggest threats to the impressive rally in U.S. stocks this year.
The problem for investors is that good news _ like real improvement in
"I think they'll probably be happy, but I don't really see this accomplishing very much in the long term," says
"They're not solving any of these problems," he says, so if things go wrong, "it's likely to be a much worse sell-off."
Under the tentative agreement, announced Saturday, investors holding
The deal would reduce
It is unclear how investors who buy and sell the bonds of other debt-burdened countries, such as
Private investors hold two-thirds of
That proposal has been met with resistance by Greek politicians afraid of losing elections this spring. But they also worry
The restructuring of
The Dow Jones industrial average is up 3.6 percent in the young year. The Standard & Poor's 500 index has gained 4.7 percent, roughly half its average gainfor a full year.
If the Greek talks break down, "the stock market could probably lose half its gains for the year,"
On paper, it's hard to see how
U.S. banks say
In its most recent report,
Some investors worry that U.S. banks would struggle to cover the
That's hardly enough to pull down the banking system. And the banks have offset all but
"The direct impact of a Greek default is almost zero,"
So what's everybody _ well, everybody but
A breakdown in talks could trigger steep losses in stock markets in
A Greek default could unleash a host of larger problems. While some are already anticipated, others are likely to blindside even the closest observers, says
"In any complex system, you're going to have unintended consequences," he says.
He compares it to the collapse of
At a conference on sovereign debt this week in
Traders seeking safety would immediately sell euros and buy dollars, Hanke said. The dollar would soar and prices for commodities like oil and wheat would collapse. A single dollar would buy much more oil or wheat.
"If the bomb is set off by
Hanke, who has advised governments around the world on managing their currencies, argued that
It's comparable to a messy default. Traders will respond by immediately selling government bonds from those countries, Humes said. Borrowing costs will rise, and
Humes has been involved in the negotiations on the side of creditors holding Greek bonds, so he has a stake in the game. But it's a scenario other money managers often cite.
"There's a fear that other countries won't negotiate at all. They'll just say, `We'll pay you back at 50 percent or maybe less," Kleintop says.
"Human emotions can drive things off the rails," Colas says.
Freed reported from
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