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hiromichi
Joined: 12 Oct 2005
Posts: 1380
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 Posted: Tue Mar 31, 2009 12:45 am Post subject: take a haircut or a bath |
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Does the captioned phrase mean a minor change or a drastic one?
“They hopefully will see that they have a pretty stark choice in terms of working something out,” said Senator Carl Levin, a Michigan Democrat, who learned of the plan Sunday night when the president called him and other Michigan lawmakers from the Oval Office. “Their option is either to take a haircut or a bath.”
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dragn
Joined: 17 Feb 2009
Posts: 450
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| Posted: Tue Mar 31, 2009 4:26 pm Post subject: |
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Hi Hiromichi,
| Quote: |
| They hopefully will see that they have a pretty stark choice in terms of working something out,� said Senator Carl Levin, a Michigan Democrat, who learned of the plan Sunday night when the president called him and other Michigan lawmakers from the Oval Office. �Their option is either to take a haircut or a bath. |
Make a minor change or drastic one? Well, sort of, but not exactly. This is really about how big a loss someone is prepared to accept. The word haircut is a financial slang term that refers to the margin or difference between the actual market value of an asset and the value assigned to it by a lender when that asset is used as collateral in a loan. In other words, if you take a haircut, the asset you own is being undervalued by some percentage by the institution lending you money. As result, you're accepting a (usually relatively small) financial loss.
If you take a bath, you get wiped out--you suffer a disastrous financial loss, and possibly go bankrupt.
The quote is in reference to the government bailout of General Motors, and Senator Levin is saying that GM bondholders have a choice: they can either lose a relatively modest amount now in restructuring the company and its massive debt (the haircut), or face the very real possibility of going bankrupt (the bath). They can either lose a little now or a lot later.
Tough talk. Tough times.
Hope this helps.
Greg |
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hiromichi
Joined: 12 Oct 2005
Posts: 1380
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| Posted: Tue Mar 31, 2009 5:01 pm Post subject: |
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dragn,
Thank you very much. Very difficult.
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