Had either Bear Stearns or Countrywide defaulted, the possibility that some of the parties couldn't afford to pay what they owed to insurance holders posed a real risk to the entire financial system.
The Hungarian currency, the forint, plunged after several government leaders warned that the Hungarian economy was in bad shape and that debt default was a possibility.
Greece's prime minister, Lucas Papademos, warned last week that without deeper spending cuts a disorderly default was a possibility, and could result in Greece leaving the euro.
The principle was absolutely right: unless default is a possibility, bond investors have no reason to distinguish between good and bad credits.
I design a repayment coordination game with strategic default and the possibility of acquiring information about a peer's investment return (peer peeking) and of sanctioning a peer (peer punishment).
"Consequences would be felt throughout the eurozone and beyond". European policymakers are looking beyond contingency planning for a Greek default to the possibility of the country crashing out of the euro.
As the threat of default and the possibility of a downgrading of the U.S. government's credit rating grew more imminent, there was an increasing consensus across party lines on the need to raise the debt ceiling.
If it fails to uphold its commitments, it faces the prospect of having its bailout funding cut off, leading to a debt default and the possibility that the country would be forced to leave the euro zone.
Fremont General, a financial services concern that regulators forced out of the subprime mortgage business last year, said Tuesday that two purchasers of its loans had declared it to be in default, raising the possibility that they could put it out of business.
In Congressional testimony this week, Mr. Bernanke also warned that the Fed would not be able to fully counter the damage from a default, including the possibility that spiking interest rates would roil borrowers worldwide and worsen the federal budget deficit by making it costlier to finance the nation's debt.
