A good example of this is a recent letter from Oaktree Capital Management to its members. The letter was posted online by Oaktree (here), and it's pre-"compromise," so I assume I can now quote a couple of paragraphs. (If I'm wrong, let me know and I'll immediately remove this post.)
One of the most striking aspects of debt in the modern era is that little if anyattention is paid to repayment of principal. No one pays off their debt. They merelyroll it over . . . and add to it. Thus credit ratings are highly deficient (shocker!) in a waythat few people talk about. What ratings describe isn’t the borrower’s ability to repayprincipal, but its ability to make interest payments and refinance principal. But theassessment of their ability to roll their debt – likewise – isn’t based on an ability to repay,but rather to refinance again. So ultimately the security of capital providers stems notfrom the borrower, but from the continued willingness of other capital providers to rolldebts in the future. (It was their occasional refusal in 2007-08 that caused the worstmoments of the financial crisis.)
With no one asking how debt could be repaid, nations were allowed for decades toincrease their deficits and debt non-stop relative to their GDP. And then, in the firstquarter of 2010, the little boy stepped out from the crowd, took note of theemperor’s non-existent new clothes, and said “Hey, wait a minute: Greece will neverbe able to repay even the debt it has, forgetting that it takes on more all the time. Itseconomy is non-competitive and stagnant, and tax compliance is non-existent. Theyshouldn’t be able to borrow.”
That’s all it took. Greece was denied further credit. And then people took a look aroundperipheral Europe and saw more of the same. Today, although the situation is nowhereas dire, they’re also looking at the U.S. and some of its states.
The entire letter is a thirteen page pdf, and well worth a read.