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Bank officials now say their losses on such debts will be bigger than they expected.
But in the last few months, losses on such debts have begun to accelerate as more Americans lost their jobs and homes.
It is unclear how much these companies can collect on such debts or whether they can hope to collect on the $100 million of fees WorldCom pays them every month to connect its customers to their networks.
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Berger went on to warn against blaming parents struggling with debt to for making poor financial choices, and said "many of those with credit card debt, medical debt, and payday loans took on such debt because they lacked other financial alternatives".
So that has made them enthusiastic buyers of inflation-linked government bonds; so much so that the real yields on such debt are close to zero, even on very long-dated issues.
Yet there are no consistent rules about who gets repaid first if a company defaults on such debt, said Zaher Barakat, a professor of Islamic finance at Cass Business School in London.
It's generally assumed that Treasury would make sure that the government wouldn't default on Treasury notes held by investors, including foreign countries like China, If it did default on such debt obligations it could be a catastrophe for the economy.
This would put pressure on such debt instruments and on their ability to refinance.
On net, we will observe still-large U.S. twin fiscal and current account deficits and less willingness and ability in the rest of the world to finance it unless the interest rate on such debt rises.
Some senior debt will now be paid back in 2012, rather than two years later, and an extra 2 percentage points in interest will be paid on 450 million euros ($553 million) of such debt.
In theory that could mean that a small state is on the line for such debt; in practice it would mean Germany.
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