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Rumor Of Sovereign CDS Ban Picking Up Steam, Lifting Market

Tyler Durden's picture


As reported earlier, some more CDS trader talk:

I m hearing and being asked from a few sources that the CDS markets in the sovereign (Greece, Dubai. Etc) nations are going to “banned “ from trading to avoid a BSC or LEH like collapse. I personally have no idea if there is any truth to the story  but it seems to be just going around in the last half hour. Obviously Greece is on the forefront of traders minds and I don’t know if a “ban” in trading this stuff is a good or bad for the markets  (trades seem to think would be a huge positive)…. But I would appreciate any insight.

Of course, the fact that the mechanics of this "ban" are so inconceivable as to make the rumor beyond ridiculous, is precisely why everyone is terrified it will be true. After all this is precisely the kind of galactic stupidity/insanity we have grown to expect out of the 3 neurons shared between Bernanke/Bair/Shapiro/Geithner.

As for whether aside from machines is buying this (for now), just look at today's comparative volume.


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Fri, 02/12/2010 - 13:20 | 228632 Cursive
Cursive's picture

Ban trading?  Wait, I was told by TPTB that "The Market" knows everything.  Who could "The Market" be wrong here and, if not, why would we shut it down?  The only thing that needs to be shutdown is Global Liars Inc. and the Extend and Pretend division.

Fri, 02/12/2010 - 14:12 | 228731 Divided States ...
Divided States of America's picture

THey should ban all trading period. Then we can have all our assets marked as of prices right now so nothing ever declines in value.

btw, would love to b1tchslap Trish on CNBC, she keeps repeating THE MARKETS ARE OFF THEIR LOWS the whole friggin day.

Fri, 02/12/2010 - 14:30 | 228775 Missing_Link
Missing_Link's picture

I think they tried that in Zimbabwe.  And Venezuela.

Fri, 02/12/2010 - 14:44 | 228802 Anonymous
Anonymous's picture

...Wha?...bitchslapin' Trish?-

Fri, 02/12/2010 - 18:04 | 229151 Anonymous
Anonymous's picture

i bet what you really mean is you would like to have Trish b1tchslap you because you like that kind of thing. What do you think? Is that what you're really trying to say?

Fri, 02/12/2010 - 13:21 | 228635 Missing_Link
Missing_Link's picture

Meh.  I'm hanging on to my EUO (ProShares UltraShort Euro).  Pretty sure that can't be banned.

Fri, 02/12/2010 - 13:23 | 228640 Anonymous
Anonymous's picture


Fri, 02/12/2010 - 13:24 | 228641 Prof Gulliver
Prof Gulliver's picture

Whatever, the market loves it. Nasdaq now green, Dow roars back. There will always be something that can move this market higher. Until it can't. But you've got to tip your hat: the "can't" seems to be forestalled forever. Until it's not.

Fri, 02/12/2010 - 15:34 | 228911 David449420
David449420's picture

I don't think that your "something" that moved the market higher was news, good or bad. What is moving the market higher is your government. immorally, dishonestly and probably criminally.

Sat, 02/13/2010 - 16:11 | 230021 Madcow
Madcow's picture

Money moving into stocks because of a fear of inflation is not good news for anyone but those who understand and control the future of the credit spigots

Fri, 02/12/2010 - 13:24 | 228643 Edwinmba
Edwinmba's picture

slight rumor- measure of risk vs measure of value; cds v stocks dont see how they can do it


Fri, 02/12/2010 - 13:26 | 228647 No More Bubbles
No More Bubbles's picture

Just mark it all ZERO!

Fri, 02/12/2010 - 13:26 | 228651 Oso
Oso's picture


Fri, 02/12/2010 - 13:30 | 228660 Hephasteus
Hephasteus's picture

Ya but it's got a chewy neuget of rediculousness. How can you NOT EAT IT UP.

Fri, 02/12/2010 - 13:30 | 228661 Stu
Stu's picture


Fri, 02/12/2010 - 13:30 | 228658 Stuart
Stuart's picture

Rumour:  Next, stamp trading will be banned. 

Fri, 02/12/2010 - 13:32 | 228668 Internet Tough Guy
Internet Tough Guy's picture

Only if the price of stamps start to fall.

Fri, 02/12/2010 - 13:59 | 228710 BS Inc.
BS Inc.'s picture

What they really need now is a real live version of that kid from the "Twilight Zone" episode where the kid forced everyone to think happy thoughts non-stop.

Fri, 02/12/2010 - 13:31 | 228664 buzzsaw99
buzzsaw99's picture

The fed backstops all the big time gamblers, no risk, drive on!

Fri, 02/12/2010 - 13:58 | 228699 Assetman
Assetman's picture

That seems to be the central message, buzzsaw.

There has been more than ample opportunity to for policy makers to apporach derivatives reform in a systemic way.

But no, we can have that.  It's still okay to do these transactions in the shadows with little underlying collateral.

So now we are now saying that trading in CDS is okay, so long was the numbers go in the "right" direction-- and if not, we'll "shutter down". 

In comparison to a rational, systemic solution-- this is just plain stupid, no matter how much lipstick you put on it.

Then again, why should be expect more out of our policy makers?

Fri, 02/12/2010 - 13:45 | 228672 Ivanovich
Ivanovich's picture

Duplicate - thanks loading page.

Fri, 02/12/2010 - 13:44 | 228673 Ivanovich
Ivanovich's picture

Out of curiousity, are the 3 neurons shared also shared by's servers?  Because the server goes down more than a White House intern.

Fri, 02/12/2010 - 13:44 | 228677 shargash
shargash's picture

This feels a lot like last year in the period between Bear & Lehman. All we need are Gasparino feeding us planted bailout rumors and Cramer assuring us "Greece is no Iceland."

Fri, 02/12/2010 - 13:55 | 228695 BS Inc.
BS Inc.'s picture

Agreed. The fact that they need to float so many rumors and policy proposals shows they are fishing for whatever will keep the markets stable (even more than usual). They're like cornered rats at this point.

Fri, 02/12/2010 - 13:51 | 228690 HelluvaEngineer
HelluvaEngineer's picture

wtf...yeah, so are we just being set up for lock limit down on Tues. or what?

Fri, 02/12/2010 - 13:56 | 228702 Hondo
Hondo's picture

First, that's not going to help Greece except maybe for the timing of the bankruptcy.  Second,  why not ban them for's all insane.

Fri, 02/12/2010 - 13:57 | 228706 AnonymousMonetarist
AnonymousMonetarist's picture

Oh my who is the flippin' genius that is coming up with this one?

Let's see if folks can't hedge with CDS what might they do ... hmmmm ...  dump the underlying?

And if speculators can't use CDS, what might they do...hmmmm...short the underlying?

$%@#$%&* Nancy Capitalists...

Fri, 02/12/2010 - 14:00 | 228712 Assetman
Assetman's picture

And if speculators can't use CDS, what might they do...hmmmm...short the underlying?

Probably not... policy makers will ban short selling as well.

That's called "foresight".

Fri, 02/12/2010 - 14:12 | 228729 BS Inc.
BS Inc.'s picture

I'm about 90% resigned to the fact that any money I make selling short will be taken from me as a "windfall tax" when the market finally goes down.

So, they won't necessarily ban it, just make it so unprofitable relative to the risk that no one will do it.

I hate these people.

Fri, 02/12/2010 - 15:49 | 228941 MarketTruth
MarketTruth's picture

Are you there yet?


Are you ready to finally pull out all your funds from banks and Wall Street?


Sell off all stocks/trades?


Perhaps even go on a labor strike with your co-workers and picket your State government?


Or are you just sitting there like a good sheeple?


"And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale. " -- Thomas Jefferson wrote in May 1816

Fri, 02/12/2010 - 14:15 | 228743 AnonymousMonetarist
AnonymousMonetarist's picture

Damn dirty apes... it's a madhouse!

Fri, 02/12/2010 - 13:57 | 228707 pooplagrande
pooplagrande's picture

Wake up! This isn't our's theirs. We are just tiny little insignificant pieces of poop dust.

Fri, 02/12/2010 - 13:58 | 228708 Anonymous
Anonymous's picture

you can still short the bonds. big deal...

Fri, 02/12/2010 - 13:59 | 228709 Comrade de Chaos
Comrade de Chaos's picture

hm, would benefit my recent emerging market puts handsomely ... just imagine all of those crazed JPM/MER robots going for distance...going for speed.

The point is, while CDS were not as popular in the late 80's as today, it didn't stop the  "emergency" *emerging markets runs.

Fri, 02/12/2010 - 13:59 | 228711 pooplagrande
pooplagrande's picture

Oh don't Tuesday market open, Captain Moron and his monkeys will come up with some way to "save the day" (aka kick the can down the road for at least another whole entire month or so).

Fri, 02/12/2010 - 14:09 | 228725 A_MacLaren
A_MacLaren's picture

Say it ain't so...  How in evil's name can the TBTF prop desks expect to make money if the under-priced sovereign CDS are not allowed to trade? 

Oh, wait a second...  Can you really trust the counter-party to make good the Sov-CDS contract?

Let's see...  Monetary Meltdown = System Lockup = TEOTWAWKI = Make the contracts payable/force settlement in Gold.  And good luck collecting...

Fri, 02/12/2010 - 14:13 | 228734 Anonymous
Anonymous's picture

The great Monolith is designed to keep stocks in the green through any event including Nuclear attack. I can't wait for this fucking machine to crash.

Fri, 02/12/2010 - 14:14 | 228740 Anonymous
Anonymous's picture

There's a method to this madness, folks. First identify the problem and the cause and effect. Then deliberately mistake the effect for the cause and take action as necessary. Then assure everyone that you've solved the problem. Market going down? Ban short selling. CDS spreads widening? Must be speculators. Consumption down? Must be people hoarding money.

Just think of it like this: why blame the rain for flooding when you can always blame the puddles? This is definately standard operating procedure. No one is allowed to be surprised.

Fri, 02/12/2010 - 14:15 | 228745 Anonymous
Anonymous's picture

How cam anybody ban a private contract between two parties?. What they can do,is announce that no goverment would be a party to bailout of any private party with cds exposure(AIG anybody?). But then again,they should just do that with all private corporations. No bailout,period. On the other hand,I don't see how such measures(be it a ban on cds,or no bailout)would alleviate anybody's pain. So now without the insurance provided by the cds,investors simply add the extra risk to the yield so that it would be built in automatically.

Fri, 02/12/2010 - 20:53 | 229321 calltoaccount
calltoaccount's picture

Basic principles of insurance law which require an insurable interest (ownership or risk of commensurate loss) in that which you insure (especially regarding someone else’s life or property), were legislatively trashed to enable rapacious, ethically bereft speculator banks and hedge funds to erect a new and extremely lucrative swindle using a kind of debt insurance product they called credit default swaps (CDS); so named, because by their rightful name, bond insurance, they would violate every state’s insurance laws and be void as against public policy without ownership of the underlying bonds—which was certainly not in the predators game plan.  Parlaying never having to actually buy or own the underlying bonds along with the ability to broadly manipulate and malign their market price downward, made 40-1 leveraged CDS bets almost sure winners; outcomes dictated from the sidelines by greedy gamblers with little or no risk of commensurate loss. 

They should simply declare all CDS bets unenforceable as against public policy, unless and only to the extent the holder also holds the underlying debt.

Fri, 02/12/2010 - 14:21 | 228751 Cognitive Dissonance
Cognitive Dissonance's picture

"After all this is precisely the kind of galactic stupidity/insanity we have grown to expect out of the 3 neurons shared between Bernanke/Bair/Shapiro/Geithner."

Now that's some funny shit.

Of course, with only 3 neurons shared by 4 morons, someone must always be in "idle"....err..."Idol" mode at all times.

Fri, 02/12/2010 - 14:49 | 228812 Anonymous
Anonymous's picture


Fri, 02/12/2010 - 15:51 | 228760 The Patagonian
The Patagonian's picture

The weird thing no one is talking about is use value.  I've said before that the only thing useful about a dollar bill or 5 euro note is that I can roll it up and snort cocaine with it or start a fire to warm myself.  That is outside what society places a value on these pieces of paper.  Less than five euros and I am dealing with coins, which may be useful to scratch lotto numbers off a ticket with.

Nevertheless, CDS and CDO are merely agreements on a certain value or worth.  If these agreements go tits up, everyone is talking about a Mad Max scenario.  But if that happens, it is only human beings to blame, because these agreements are only human constructs.

Since we humans constructed them, we can also say they have no worth and therefore cannot harm us.

That may be wishing for unicorns, I agree.  But in physical reality these things that we have made up offer no real existential threat to the human race - only to a human system of agreement that we are desperately clinging to.  I put forth that once we let go of such system, we no longer face existential threat.

Of course that demands that we step out of comfortable bubbles and I do not think the human race is ready for that yet.

So we will see what comes.  But what ever comes, it will be from our own making.

And don't think investing in guns and reloading will save you.  What will happen when trade and petroleum shipments break down?  You won't get your Breakfree, that's for sure.  After a thousand rounds shot out of your weapon of choice, you will soon find that it jams up without lubricant and is worthless.

Not one of the gold bugs advocates going to the archery range, but maybe they should.  At least trees for arrows are more available than lead and the lubricant needed for firearms.

Fri, 02/12/2010 - 14:34 | 228780 Traianus Augustus
Traianus Augustus's picture

New rumors Ben Benanke at your earliest convenience.  At least 365 new and creative rumors to be used at Ben's direction.  Foreign and Domestic rumors will be considered.  Thank you for your patronage!!!!

Fri, 02/12/2010 - 14:34 | 228782 Anonymous
Anonymous's picture

Neat.... wonder how they'll stop sovereign cds on a dime & net out who's exposed to what and settle it all nice & clean without bankrupting banks & insurance cos. trafficking this junk. Even if they did ban trading sovereign cds, riskier bond yields would skyrocket, including those of the U.S., so... This ban will not come to pass. ever.

Fri, 02/12/2010 - 14:36 | 228788 Anonymous
Anonymous's picture

if the source does not know whether it is good or bad to ban trading in evaporating securities he is another part of the financial problem - he is not part of the solution.....

it is NEVER a good idea to ban or suspend trading securities no matter how irrationally the market is will eventually come to its senses....even if many billions are made and lost by the saavy and the fucktard....

the need to ban trading is based upon the need to be stupid.....

Fri, 02/12/2010 - 14:39 | 228791 Anonymous
Anonymous's picture

So, if I close my eyes they go away??

Does that work with car payments?

What a bunch of fucks.

Fri, 02/12/2010 - 14:59 | 228832 BlackBeard
BlackBeard's picture

HAH! if they DO find a way to enforce a ban, we'll see Sovereigns sell off in a huge way.  Do any of you honestly think that the majority of those contracts are being held by naked specs?  Me thinks that the majority of those contracts are being held by people that are long.  IF they can't hedge their long sovereign positions....then why hold?  It would be time to sell.

Fri, 02/12/2010 - 15:17 | 228871 Anonymous
Anonymous's picture

Ban it ?

How about banning bad govt....and replacing it with something real....

Fri, 02/12/2010 - 15:24 | 228886 Anonymous
Anonymous's picture

Some landlslide on the move

Update on Gensler's intentions

"Unfortunately, a measured response does no good to the dealers in CDS, who require volatility and even panic to make their game a profitable one. If contagion spreads in uncontrollable ways, so much the better for the traders in volatility, never mind the collateral damage.Until the CDS market is confined to buyers who have an underrlying interest in the risk being covered, and sellers who are regulated as insurance companies with adequate reserves, this market will remain a reckless enterprise bent on arson. Serious issues of sovereignty and stability are at stake. Regulators have to stop ignoring the piñata party and start providing adult supervision." James Rickards op-ed
in today's FT 'How markets attacked the great pinata'

Fri, 02/12/2010 - 15:27 | 228897 Anonymous
Anonymous's picture

Let's see the accumulated volume for the rest of the day... did it turn back green for the leg back down only to turn red in this latest spike?

Fri, 02/12/2010 - 15:28 | 228899 Anonymous
Anonymous's picture

can someone explain the indicator that tyler pointed out? a definition would be greatly appreciated.


Fri, 02/12/2010 - 15:35 | 228917 Anonymous
Anonymous's picture

Funny how this CDS are trading.
Do you guys really think they reflect the European economy.
How about looking at US deficit.

Trading my friends is nothing more than
buy/sell from big players.
Doesn't reflect the reality.

The market knows better is a childish approach

They can kill a big economy a currency just because THEY CAN.

Are you telling me that the price of oil is true at 35 or 140 ?
Yeah they should ban that stupid trading called CDS.
I am a trader too. Trading has gone TOO FAR !!!

You can't just kill a country because you wanna make a killing and give yourself fat bonuses. while some eastern european contry (currency) that you just killed. have some people in the street because they can afford to pay the mortgage in foreign currency.

Back to common sense !!!

Fri, 02/12/2010 - 15:47 | 228937 Anonymous
Anonymous's picture

2 neurons too many!

Plenty of bozonons, however.

Big heads fill big clown shoes. Still, since only electrons and egos are will work!

40muleteam borax

Fri, 02/12/2010 - 16:17 | 228999 reload
reload's picture

Hello Mr Blackbeard, I am new here. But as I understand it the notional value of some Sovereign CDS does now massively dwarf the underlying market. More than one or two fund managers I know do not like this at all - they complain that the fleas on the dog weigh more than the dog. However nobody can say for sure if the net value of open CDS positions dwarfs the underlying or not - nobody can tell when contracts are in effect covered by an oposing contract, naked one way or the other, or being used for insurance. This means the CDS prices have an ability to spook holders of the underlying. I think it is the lack of transparency rather than their function which is seen as the problem. Have a great weekend all & thanks for this great website.  

Fri, 02/12/2010 - 16:52 | 229045 jedwards
jedwards's picture

market likes it, or they are just short covering and waiting to reload?

Fri, 02/12/2010 - 18:24 | 229172 Anonymous
Anonymous's picture

Sovereign CDS? My beautiful, round and hairy butt. Bailed out by who, Einstein?

Wanna short short? Feel free to build a position first and stick your “Sovereign” CDS up your "Sovereign" parts where the sun ain`t shining - on your way out.

Sat, 02/13/2010 - 02:59 | 229617 Anonymous
Anonymous's picture

It's about time they get banned. The too big to fail crowd can issue them at will knowing that the more they issue, the more certain they can be that all downside risk will be covered by bailouts.

How can it be that an soverign debt issuance has tails that wags with 40x leverage. It has been insanity and a tsunami waiting to happen all along.

Sat, 02/13/2010 - 16:19 | 230026 Madcow
Madcow's picture

Either you believe in the Fed and their capacity to double the money supply. again. (Dow stays at 10K, gold goes to 10K)


Or you believe the Fed is finished, and the forces of deflation are unstoppable. again. (Dow falls to 1K, gold stays at 1K)


Simple as that.

Sat, 02/13/2010 - 16:24 | 230029 Madcow
Madcow's picture

Don't think they won't ban short selling via monkeying with the tax code.  The plan is to stretch a catastrophic 2 year collapse and adjustment into a merely agonizing 30 year collapse and adjustment. 

One way or another, the markets will discount the forces of inevitability, which accelerates the time frame. Governments are trying to lengthen the time frame (Japanese style).  If everyone starts trying to revive their retirement fund by loading up on levered ProShares short funds, the system crashes in a couple months. 

Mon, 04/19/2010 - 09:56 | 307767 Tom123456
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