Something Strange in the Neighborhood

The recent effects at the European financial barber shop have left me more than a bit confused. Greece owed a lot but could not afford to pay, so a deal was arranged whereby most lenders “voluntarily” accepted a roughly 70% haircut or payout at 30 cents on the dollar. A few percent of borrowers declined the deal, triggering a “credit event” ruling from some somebodies somewhere (the ISDA committee), causing credit default swap (CDS) policies to become payable. Somehow, though, Greece had been able to insert and activate collective action clauses (CACs) in most of the loans, which presumably made them immune to their CDS protections.

(a) So why did anybody accept, unless

(b) The CACs made them, and if so how, and

(c) Why were the few exempt? And

(d) WTH is a collective action clause, anyway?

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