Posted on 03/09/2012 12:03:07 PM PST by blam
IT'S OFFICIAL: ISDA TRIGGERS GREEK CDS IN UNANIMOUS DECISION
Simone Foxman
March 9, 2012
It's for real this time.
The International Swaps and Derivatives Association determined today that Greece's bond swap has triggered a credit event.
That will lead to payouts of credit default swaps—essentially, securities contracts on holdings of Greek bonds—that investors purchased to hedge against the risk of holding Greek sovereign debt.
An auction related to outstanding CDS transactions will be held on March 19. The committee asks that any investor wanting to participate in the auction notify ISDA immediately.
Provocation of a credit event has been a contentious topic in Europe during the last few months. On one hand, sovereign CDS contracts are the only securities that allow investors to hedge and speculate directly against governments. Because the market is so opaque and because many financial institutions are on both sides of this trade, credit default swaps have compounded concerns about the contagion that would occur as a result of a financial shock.
While the market for Greek CDS is relatively small, some traders and officials had been fearful that a credit event was still not fully priced in, and could have some negative consequences.
On the other hand, attempts to subvert existing CDS contracts would have also compromised investors' faith in EU leaders' willingness to stick to market rules. Analysts had feared that this distrust for sovereign credit default swaps would have spread into the corporate CDS market, destroying a major industry with far-reaching consequences.
Here's the official statement (pdf):
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EMEA DC Statement March 9, 2012
In light of today’s EMEA Determinations Committee (the EMEA DC) unanimous decision in respect of the potential Credit Event question relating to The Hellenic Republic (DC Issue 2012030901), the EMEA DC has agreed to publish the following
(snip)
(Excerpt) Read more at businessinsider.com ...
I don’t know enough to say. But I have a feeling Zero is using U.S. Tax dollars to prop up Socialist Greece. After all,
why should Greece be held accountable for their Socialist Policies (Like California)?. SAC
And Spain...
A credit event is a 50 cent way of saying ‘default’.
The way a Credit Default Swap (CDS) works is that a lender asks the debter to buy insurance to make him/her whole should they default on the loan.
That CDS traditionally was held by the lender, and was worthless if the debt was paid back. The insurer (AIG was a BIG writer of such insurance policies) would make money on the premiums collected on those policies.
If the debtor defaults on the loan, the insurer (AIG) would pay you the face value of the loan, and then would be the new holder of that loan (that’s the swap part).
What happened in Greece was a declaration that Greece has formally defaulted on their sovereign bond debt. Individuals made Greece a loan, and Greece can’t pay it back. That means that the writers of the CDS’s insuring those bonds against default now have to pay the face value of those bonds.
HOWEVER, what is unclear to me in all of this is whether there was some deal that was put in place to protect the AIG’s and others in the world dumb enough to insure those bonds.
Keep in mind, that Italy, Spain, and Portugal are sitting there with far more bond debt. Portugal is said to be the next pony off the cliff, since the confidence that some accommodation could be made to save BOTH Greece AND the Euro was not successfully accomplished.
Also unclear is whether Greece will be forced to reissure Drachmas for Euros, etc.
This is giant. They just declared Greece fiscally dead, for all intents and purposes.
But, the knowledgeable FReepers will be here shortly to explain it to us all.
Heh. While we wait, I'll just add that it's Europe. Of course, it's bad. The EU is doing exactly what was intended: end war. Now, they just destroy each other economically.
Thanks.
I don't know why there hasn't been a bigger reaction if it's so big, eh?
Really, gold reacted rather mildly. My guess is that it’ll be looking to settle in around $1750 for a while.
>> “But I have a feeling Zero is using U.S. Tax dollars to prop up Socialist Greece.” <<
.
When has he not?
Obama’s only hope for re-election is for Europe to hold steady through the elections, and the Fed is pumping bucks across the atlantic, and into the stock market as fast as their turbo powered printing presses will run.
Thanks.
Who has that kind of money to insure the debt of Greece?
Swiss Re, Lloyds, AIG, mostly. There are others.
Let’s call it ‘fiscal dissemblance’.
It’s not a ‘default’. It’s a ‘selective default’. No kidding, that’s what Moody’s is calling it.
France is going to lose $10B, Germany $12.5B, and there are still talking about a bailout.
Spain is in for billions too, and they are next.
Let’s call it ‘fiscal dissemblance’.
It’s not a ‘default’. It’s a ‘selective default’. No kidding, that’s what Moody’s is calling it.
France is going to lose $10B, Germany $12.5B, and there are still talking about a bailout.
Spain is in for billions too, and they are next.
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