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Merkel Provides Some Sanity To The Anti-CDS Hysteria

Tyler Durden's picture




 

GERMANY MERKEL: CANNOT BAN CDS MARKET OUTRIGHT
GERMANY MERKEL: MIGHT NEED CDS MKT CURBS TO LIMIT SPECULATION
GERMANY MERKEL: NEED TO CHANGE EU TREATIES TO HELP MEMBERS
GERMANY MERKEL: MUST MULL HOW EMU, EU CAN LEGALLY HELP MEMBERS
GERMANY MERKEL: POINTS TO NO-BAILOUT RULE FOR EMU MEMBERS IN EU TREATY

GERMANY MERKEL: CANNOT RULE OUT NOR AFFIRM ANYTHING
GERMANY MERKEL: FINANCIAL AID TO GREECE NO TOPIC CURRENTLY
GERMANY MERKEL: DON'T SEE IMMEDIATE GREEK DEFAULT RISK
GERMANY MERKEL: SPECULATION PARTLY TO BLAME FOR GREECE WOES
GERMANY MERKEL: A EUROPEAN MONETARY FUND IS A GOOD IDEA

In the meantime, apparently Sov CDS traders are demanding collateral in gold. Aside that this is news to pretty much all CDS traders, let's dissect this argument. You buy CDS on the US, and you tell your counterparty in advance (because, you know practically speaking) this is when the contract determinations are made. Let's say you wish to transact with JPM, one of the top three CDS traders in the world. Of course, JPM realizes all too well what this would do to the price of gold should sovereign risk go higher, either naturally, as a function of 400% debt/GDP ratios (including all unfunded liabilities) or, hypothetically, because every "speculator" wants to jump in on the sov trade for whatever reason. JPM, which is already very much short gold in its prop books, as has been the case with all major banks over the past 50 years, will be very unwilling to execute this transaction, and will tell the other side of the trade to buzz off, and that only €-denominated trades will be accepted. Sure enough, at this point the trade will either collapse, or will be done as per usual, and as has been done over the past 10 years. The conclusion is that suggesting that both sides of the trade would be willing to do it should the trade be denominated in gold is alas, absurd, (although very much welcome for true gold price discovery) as JPM knows too well that this has the potential of unsettling the fragile steep yield curve that it is betting its record future profitability on. There is also this thing called ISDA, which tends to oversee these things (yes, shockingly even though this stuff is OTC, there are rules), and even though Hedge Fund X may demand collateral in one's first new born, saying that this is a possibility is precisely the kind of unwarranted witch hunt that may very well get CDS banned, only for all those who blame CDS for everything to uncover that absent the natural basis hedge for new issuance, that all new Sov bonds will come much, much wider than even existing levels imply.

We urge everyone to consider what the material ramifications are of such speculative allegations.

 

 

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Mon, 03/08/2010 - 12:58 | 257816 Anonymous
Anonymous's picture

Wrote a couple of days ago:"Here comes a boxing match of Merkel vs GS",and if I have to put my money on somebody,I would put it on GS. Second or third round in TKO..

Mon, 03/08/2010 - 13:03 | 257827 Missing_Link
Missing_Link's picture

GERMANY MERKEL: GET A JOB, HIPPIES

Mon, 03/08/2010 - 13:04 | 257828 Hephasteus
Hephasteus's picture

Ya don't ban CDS. Just let whoever has to pay go bankrupt instead of getting a bailout. Wasn't that how insurance worked years ago. Sell a bunch of insurance for super cheap. Spend the money when disaster strikes fold up and leave town.

Mon, 03/08/2010 - 13:06 | 257833 Anonymous
Anonymous's picture

Greece is to blame for Greece's woes. Period. They put themselves in the position which others can speculate on their demise.

We are now moving from nearly all individuals being victims, to sovereign countries being victims.

Mon, 03/08/2010 - 13:11 | 257839 BlackBeard
BlackBeard's picture

I'd stick my foot in her mouth.  Little sausage cutie with princess leia braids.

Mon, 03/08/2010 - 13:22 | 257854 Anonymous
Anonymous's picture

Maybe you are thinking of Yulia Tymoshenko? Merkel is not a cutie and does not have braids.

Merkel:

http://blog.kievukraine.info/uploaded_images/5401-742183.jpg

Yulia:

http://www.europeatstake.com/wp-content/uploads/2010/01/yulia-tymoshenko...

Mon, 03/08/2010 - 13:19 | 257851 Anonymous
Anonymous's picture

An expert can correct me, but couldn't collateral in any particular currency be converted to Gold? If I ran a hedge fund and bought a CDS from on my UK bonds I just bought, couldn't I demand that the collateral (say in Euros) be put in a separate account. Then use that account, and my UK bonds (one or the other is a pay-out) as collateral to buy gold? Couldn't I also have an agreement with the third party holding the collateral account to convert it into Gold?

It would be more convoluted than just having JPM deposit some Gold in an account, but still possible to achieve indirectly.

Mon, 03/08/2010 - 14:26 | 257957 fuu
fuu's picture

Janet is that you?

Mon, 03/08/2010 - 13:22 | 257855 Anonymous
Anonymous's picture

Well,may be,just may be JPM will agree to such a transactionthinking that the time of reckoning will never come. Afterall,didn't AIG think that too?. While agreed,Dimon will not fall in a trap that he and others wrote,but greed might do more. And come to think about it,Hedgies might just form a "group thinking"that fiat currencies are no longer good settlement on those CDSs when actually you are betting against their soverign backers.

Mon, 03/08/2010 - 13:29 | 257871 knukles
knukles's picture

My mom got hysterical once.  Didn't help.

Mon, 03/08/2010 - 13:34 | 257880 Anonymous
Anonymous's picture

What's wrong with banning Naked CDS - doesn't make sense to buy insurance where you don't have an insurable interest ... Keeps the positives of CDS (risk mitigation, etc.) while clamping down on the more speculative element -- no longer can Ackman & co short stock, buy CDS and let the reverse feedback loop earn him great sums of money.

Mon, 03/08/2010 - 13:35 | 257883 trav7777
trav7777's picture

Translation:  We hedged our Greek exposure with AIG CDSs

Mon, 03/08/2010 - 13:48 | 257907 assumptionblindness
assumptionblindness's picture

Merkel's statements aren't surprising at all.  Her telephone was probably ringing off-the-hook over the weekend with various German bank CEOs calling to say; "Shut up!  shut up!  shut up!  Are you stupid?!  Don't you know that our capital ratios are supported by the CDS market?!  If the CDS market is banned then we are all Fuc-d!   Get it!  Got it?  Good...  You know what to do."

Mon, 03/08/2010 - 13:58 | 257914 MsCreant
MsCreant's picture

Opps.

Mon, 03/08/2010 - 14:09 | 257924 velobabe
velobabe's picture
Tavakoli: Washington Must Ban U.S. Credit Derivatives as Traders Demand Gold

Stacy Summary:  Wow, great piece by Janet Tavakoli.  We definitely need to get her on the show to discuss. 

http://www.youtube.com/watch?v=WA20Am0pwtA&feature=player_embedded#

maxkeiser
Mar 8, 2010 at 5:08 pm

Got Gold?

New currencies being created in the mid-east will have a gold component.

Chinese, Indians, Russians. . . . all increasing gold positions.

Rich hedge funds like P.J. Jones, Soros, and John Paulson dramatically increasing gold position.

also, I have some inside info. re: Janet T. She is working on a new story about the gold ETF, GLD that should be out soon (if it is not already out).

Mon, 03/08/2010 - 16:08 | 258117 trav7777
trav7777's picture

Notice how as soon as Gold appears to have ANY value whatsoever, Douchinger says BAN ALL SOV CDSs!!!!!!!

God, why the fk would traders demand payment in something WORTHLESS as Douchinger says gold is?  He should be ALL FOR IT.  Heck, man, who wouldn't want traders to get compensated in something so useless and without intrinsic value as gold, eh, KD?

Tue, 03/09/2010 - 03:19 | 258899 MagicHandPuppet
MagicHandPuppet's picture

+1... don't know why KD is constantly hating on gold.  Makes me suspicious... but, nothing new.  I'm always suspicious!

Mon, 03/08/2010 - 16:34 | 258163 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

V, now you are running game!  Bravo!  Tavakoli is one of the best!

Mon, 03/08/2010 - 17:28 | 258223 velobabe
velobabe's picture

jimi she should be the woman of the year, got game over all of them, warren, clinton. wow did you listen to this 60 interview on C-Span. she is beautiful, a chemical engineer degree. WOW i am in love, she wears pearls. married an iranian for 4 yours but is divorce. she comments on maxkeiser.com

JT
Mar 8, 2010 at 6:53 pm

@Stacey, Max

I just got a reply from David McWilliams saying he would go on the show!

So I recommend that you contact him through his website at :

http://www.davidmcwilliams.ie/contact-david

Hope this helps!

Pissed off Irish man!

P.S I’ve a case against my previous employers (public sector) in two weeks to get my job back under the fixed-term workers act 2003….wish me luck guys!

Mon, 03/08/2010 - 14:14 | 257939 chet
chet's picture

Just shrink the CDS market down and regulate it like insurance.  Require transparency.  Ban naked gambling with these things.

We are masters at acting like straightforward solutions are hopelessly convoluted and inachievable.  "Oh, what are we to do?"  Why not listen to the many many wise people telling you precisely what to do?  I just summarized it in less than 100 words.

I don't think most American people have quite woken up to the fact that the modern Congress can't/won't do anything to fix national problems.  The institution simply no longer works.  They aren't going to fix any of this.  They aren't going to re-regulate Wall Street.  Five years from now, every single one of the problems with the financial sector will still be there, completely unaddressed.

Lots of people are starting to realize that Congress simply doesn't work, but not enough.  And what's more, once you realize it, what the hell can you do?  Elect a different set of people to go sit around in a an institution that's fundamentally broken?

Mon, 03/08/2010 - 14:31 | 257963 Anonymous
Anonymous's picture

Very, very disturbing news: I sold most of my gold last year to purchase some property that never materialized.

Hey, this is what true gold-bugs have been preaching for like... ever. Things are heating up, and fiat paper will burn baby burn long before gold melts.

Mon, 03/08/2010 - 14:38 | 257978 walküre
walküre's picture

Confusion reigns.

Who here can honestly say they completely and totally understand who is owed what and what insurance is paying which default out of which pocket?

Chickens running with their heads cut off coming to mind..

If you're ignorant to believe that this game of financial trickery can go much longer, all the power of ignorant bliss to you.

If you're like me and feeling just a little bit uneasy about the massive propaganda and the confusion.. make the exit before everyone else catches on.

When the world knows what is being played, it will be too late.

Mass hysteria, pandemonium, chaos and anarchy are not fun to watch. Not even from the sidelines.

Mon, 03/08/2010 - 21:02 | 258519 Anonymous
Anonymous's picture

There won't be any sidelines for this one... well... maybe Madagascar or Bali or some place.

Mon, 03/08/2010 - 15:51 | 258092 dnarby
dnarby's picture
"Merkel Provides Some Sanity To The Anti-CDS Hysteria"

Uh...  WTF, Tyler?!

"GERMANY MERKEL: CANNOT BAN CDS MARKET OUTRIGHT"

They could absolutely fucking ban them if they fucking wanted to!

But if they are not going to ban them, then they need to fucking regulate them like they do INSURANCE, which is what CDS are supposed to be!!!

Denninger lays it out here!

http://market-ticker.denninger.net/archives/2057-Janet-Is-On-It-Again-So...

 

Mon, 03/08/2010 - 16:16 | 258138 trav7777
trav7777's picture

Douchinger is utterly full of shit.

Someone in Iran or Dubai or Lichtenstein could open a CDS bourse even if these things WERE on an exchange (which they're not).  They're OTC contracts subject to the laws of the nation they were originated in.

If they have knock-on effects for people netting out their exposure, like going short the national sovereign issue, then who gives a shit?  Sovereigns have been FEEDING the CDS beast for a decade.

Mon, 03/08/2010 - 16:30 | 258160 Anonymous
Anonymous's picture

KMG,

Is that you?

Mon, 03/08/2010 - 19:55 | 258444 dnarby
dnarby's picture

And pray tell WTF that has to do with regulating CDS's like insurance (e.g. requiring adequate collateral)?!

Looks to me that if you want to find a douch, you should look in the mirror.

Tue, 03/09/2010 - 00:45 | 258814 williambanzai7
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mark456's picture

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