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Barclays Explains Why A 50% Greek Haircut "Would Be Considered A Credit Event, Consequently Triggering CDS Contracts"

Tyler Durden's picture


Barclays, a voting dealer of the ISDA determinations committee, two short days ago made the following statement: "In our view, there is little doubt that a large notional haircut of c. 50-60% would be considered a credit event, consequently triggering CDS contracts." Since the entire Greek bailout now centers around ISDA refuting what one of its members has said on the public record, and effectively making any form of sovereign hedging via CDS null and void, we can't wait to hear just what excuse the International Swaps and Derivatives Association will use to justify the transfer of billions of monetary ones and zeroes equivalents into its electronic pocket in the process making a complete mockery of its mission statement, presented as follows: "ISDA fosters safe and efficient derivatives markets to facilitate effective risk management for all users of derivative products." We expect ISDA to release a statement imminently, as CDS traders will have to know how to treat existing protection before the US CDS market opens around 5:30 am. And since we already know what the release will say, (though we are very curious as to how ISDA will deny what is glaringly obvious), we urge readers to address all their concerns, furious anger and profanities at this grotesque sacrifice of a self-professed responsibility for "effective risk management" at the altar of the almighty dollar, to the following address...

360 Madison Avenue, 16th Floor
New York, NY 10017
Phone: 212 901 6000
Fax: 212 901 6001

and even better, here is who is Deputy CEO ISDA Europe: George Handjinicolaou

What do you know: a Greek!

In the meantime, here is once again a full repost of Barclays validation why a 50% haircut is and always will be a hard credit event.

The Dealbreaker: Barclays Sees A 50-60% Haircut As A CDS Trigger

Finally someone dares to go ahead and say what is on everyone's mind, namely that proclaiming a 60% "haircut" as voluntary is about the dumbest thing to ever come out of ISDA. As is well known, the ECB and the entire Eurozone are terrified of what may happen should Greek CDS be activated, and "contagion waterfall" ensue. The fear is not so much on what happens with Greece, where daily CDS variation margin has long since been satisfied so the only catalyst from a cash flow market perspective would be a formality. Where it won't be a formality, however, is for the ECB which has been avoiding reality, and which will have to remark its entire array of Greek bonds from par to 40 cents on the dollar, which as Alex Gloy indicated earlier, will render the central bank immediately insolvent all else equal. What it also will impact is treatment of all other banks and pledged collateral valuations which is effectively the only bridge in the chasm between Mark to Unicorn and reality. So here is Barclays with what can be the effective dealbreaker, because if a bank: an entity that owns the credit event determinations committee at ISDA, comes out with a contrarian statement to the conventional "stick your head in the sand" wisdom, then pretty soon everyone else will have to follow sui: "In our view, there is little doubt that a large notional haircut of c. 50-60% would be considered a credit event, consequently triggering CDS contracts." And here is why Wednesday's summit is now guaranteed to be a flop: "We consider that launching a hard restructuring without the adequate backstop could be too risky from a financial stability perspective, and we think the ECB would likely take this view." Since the summit will have to announce a decision on the Greek haircuts to be taken even remotely seriously, and since the ECB simply can not make one at this point, look for major disappointment, whether the summit is Wednesday, Thursday, next month, or next year, simply because the ECB will not be ready to pull the trigger for a long, long time.

What happens when a 50% Greek default is declared a "Credit Event"? Here is Barclays' Antonio Garcia Pascual with the explanation:

The FT is reporting today that "European negotiators" have asked the Greek government to impose a 60% notional haircut on sovereign bonds. The EU stance was apparently presented over the weekend by Vittorio Grilli (head of the Italian Treasury and lead European negotiator) to the IIF. Press reports over the past two days have also indicated that the IIF has warned against any haircuts above 40% as they would not be voluntary. The FT also reports that the ECB, France and the IMF remain concerned of the likely credit event and the trigger of CDS contracts. German and Greek newspapers argue that investors should brace for losses between 50% and 60% but they do not provide details as to whether this would imply notional haircuts or whether it would be done through drastic reductions of the coupon and/or extension of maturities. Ekathimerini indicates that Greek FM Venizelos had referred to a "radical haircut" that would not threaten the stability of the Greek economy. 

Also, several Greek and international press reports have reported on a leaked draft debt-sustainability-analysis carried out by the IMF in the context of the 5th programme review. The report appears to indicate that a deeper PSI has a vital role in establishing sustainability of Greek debt. In order to reduce the debt below 110% of GDP by 2020, the report indicates that it would require a face value reduction of at least 60% of Greek debt and/or more concessional official sector financing terms.

Our views on a "hard" restructuring

In our view, there is little doubt that a large notional haircut of c. 50-60% would be considered a credit event, consequently triggering CDS contracts.

However, this would imply that the ECB would have given up its "resistance to a hard restructuring". In our view, that resistance has been motivated by concerns on the potential impact of CDS-triggers across the European financial institutions (FIs) and, more broadly, on concerns on financial stability, in particular on the potential trigger of a bank run in Greek institutions and the scope for contagion to other EMU countries. A hard restructuring would have its largest impact on Greek FIs, which hold more than EUR80bn of Greek debt, of which c.EUR45-50bn is held by banks (including bonds and T-bills).

We have argued in several research reports that the ECB could accept a hard restructuring (eg, 50-60% haircut) only after adequate safety-nets are in place. Specifically:

  • EFSF has adequate financial resources and there is agreement on how to best deploy them, including in the form of a second programme for Greece;
  • Italy and Spain have sufficient support from the EFSF and ECB and the countries are committed to deliver the needed adjustment policies (ie, Italy delivers pro-growth policies and reduces public debt-stock, including through privatisation; Spain completes the restructuring and recapitalisation of the cajas and contains regional deficits);
  • ECB maintains its exceptional liquidity facilities, including the SMP programme for as long as is required;
  • ECB provides full liquidity support for Greek banks even in the event of a sovereign restructuring (EFSF and IMF, in the context of the Greek programme, would provide funds to recapitalise Greek FIs)

We consider that launching a hard restructuring without the adequate backstop could be too risky from a financial stability perspective, and we think the ECB would likely take this view. Therefore, we would see scope for a possible delay in the announcement of a hard restructuring (ie, a specific size of the haircut) unless there is a substantive announcement on all the other fronts mentioned above.

Other likely implications of a hard restructuring, include:

  • A 60% notional haircut would imply a similar reduction in the collateral available to banks using EGBs as collateral (however, collateral at the ECB should normally be MtM, so to the extent it is marked in the 40s, then a 50-60% haircut should not have a substantial impact).
  • The ECB would need to authorise a larger use of ELA by Greek banks, which are already using EUR21bn.
  • Euro area countries would need to decide how to treat ECB holdings of Greek debt under the SMP programme, c.EUR45bn.  A possibility is for the ECB to be taken out of its exposure (possibly by the EFSF) before launching a hard restructuring.

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Wed, 10/26/2011 - 23:31 | 1815773 tom a taxpayer
tom a taxpayer's picture

Is credit event? It depends on what the meaning of the word "is" is.

Wed, 10/26/2011 - 23:35 | 1815836 Oh regional Indian
Oh regional Indian's picture

Is : Reality 


As you can See : Fiction

Looks like a huge wind-up. Shiver me timbers etc.


An Audio Visual Journey

Wed, 10/26/2011 - 23:41 | 1815858 Harlequin001
Harlequin001's picture

Ok, so explain to me then how a 50-60% writedown can possibly be considered as anything other than a credit event?

and then explain to me what the point of a CDS is if this isn't it.

and please spare me the bit about 'derivatives are for trading, not for collecting...'


Wed, 10/26/2011 - 23:48 | 1815889 qussl3
qussl3's picture

Haircut taken on the creditor's initiative.

Debtor took no action to force.


No credit event.


Thu, 10/27/2011 - 00:18 | 1815938 Harlequin001
Harlequin001's picture

Magic. No credit events with gold, eh...

Unless of course, you're with GLD...

Now let me see, the only way as I understand it to force a collective haircut on all creditors is through bankruptcy in one form or another. So even one fund manager insisting on full payment would effectively force either a claim for preferential treatment or a default, otherwise it is the insolvency route. I still don't see how this is not a CDS event...

Personally I find it somewhat staggering that these clowns would try to negotiate a 'market rate' based on whether they can or cannot avoid a default.

A market rate is precisely that, regardless of derivative contracts...

Time to start really benefiting from the consequences of all that 'financial innovation'...

Thu, 10/27/2011 - 00:27 | 1815993 flacon
flacon's picture

Is this the moment of nuclear fission? Or will the communist leaders in charge of the global monetary system resort to their LAST DUTY?


 “The last duty of a central banker is to tell the public the truth.” -Federal Reserve Board Vice Chairman Alan Blinder

Thu, 10/27/2011 - 00:44 | 1816038 Harlequin001
Harlequin001's picture

The only time a central banker is ever going to tell you the truth is when they tell you it's over, last week, and oh by the way, here's the bill...

Please pay promptly to avoid penalties...

Thu, 10/27/2011 - 01:28 | 1816114 DoChenRollingBearing
DoChenRollingBearing's picture

All of these little Euro-thingies going on are non-events.  Stop worrying!  This ain't no stinkin' Credit Event!


Of course they will find a way to muddle this one through, just as always.  And they will keep on doing it. 

Until it does not work anymore

Thu, 10/27/2011 - 01:58 | 1816168 derek_vineyard
derek_vineyard's picture

"its a wrap"

Thu, 10/27/2011 - 03:40 | 1816269 Harlequin001
Harlequin001's picture

The Fed will pay. It's the only entity that can...

Don't you just love this spreading wealth around mularky. It's just so easy, fast and well, relatively inexpensive, for me anyway.

Wed, 01/18/2012 - 23:14 | 2076837 haibop
haibop's picture

exactly... junk car for cash

Sat, 11/26/2011 - 11:36 | 1915075 haibop
haibop's picture

thanks for the great information! frameless shower doors

Tue, 05/01/2012 - 21:04 | 2389830 haibop
haibop's picture

hmmmm Inteligator

Thu, 10/27/2011 - 05:20 | 1816348 goldenbuddha454
goldenbuddha454's picture

I'm not an expert, but it seems like it is obviously a "credit event" a trigger, if you will, setting off the CDS contracts against Greek sovereign debt.  The problem is will the governing body representing the CDS financial system consider it as such.  How can they not?  If they do consider it a "credit event" then a bunch of money is going to be hemmorrhaging out of the banks selling the CDS contracts thus causing a major run, but in all likelihood, they will not lable it a "credit event" to prevent a complete collapse of the banking system.  How many trillions have been bet against Greek debt?  How much is actually backed by hard money in the CDS contracts?  What will happen as a result of the moneys not being paid out per the CDS contracts will be that noone will want to buy interest in the CDS's anymore thus shutting down the whole CDS game in its entirety, thus shutting off the flow of needed income to the sovereign debt countries and entities, thus shutting off the flow of needed money to continue unending spending, entitlement programs, public pension obligations etc..etc...IMO

Wed, 10/26/2011 - 23:49 | 1815892 kengland
kengland's picture

" of its members"


You just gave them an out

Wed, 10/26/2011 - 23:24 | 1815790 qussl3
qussl3's picture

Cant remember the guest's name, but someone on CNBC made an observation that this was the portfolio insurance debacle redux.

If your hedges dont work you dump the crap.


Wed, 10/26/2011 - 23:24 | 1815791 SGS
SGS's picture

Feta.  Hands down.

Sun, 03/18/2012 - 12:00 | 2267119 haibop
Wed, 10/26/2011 - 23:26 | 1815800 Big Ben
Big Ben's picture

If this is determined NOT to be a credit event, then what about all the banks (like MS) that claim to have their European exposure hedged?

Just wondering...

Thu, 10/27/2011 - 00:32 | 1816008 flacon
flacon's picture

They will say "The hedges are there for a catastrophie, obviously this situation is TRANSITORY.". Move along! Move along!

Wed, 10/26/2011 - 23:27 | 1815803 Unprepared
Unprepared's picture

ISDA isda boss ... do not argue

Wed, 10/26/2011 - 23:27 | 1815805 kito
kito's picture

last one to file a federal class action lawsuit against the isda is a rotten egg!!!!!

Wed, 10/26/2011 - 23:36 | 1815842 Oh regional Indian
Oh regional Indian's picture

Though, DUMPtyesque, they'll feel more like a broken egg.

Must be tough, trying to drink from a firehose.


Thu, 10/27/2011 - 01:53 | 1816161 StychoKiller
StychoKiller's picture

Hmm, 40% pregnant or 60% pregnant -- something very wrong with the EU math here...

Wed, 10/26/2011 - 23:33 | 1815809 Mactheknife
Mactheknife's picture

>What do you know: a Greek!

Priceless...literally. Like good ole Uncle Warren said, "When the tide goes out, you get to see who was swimming in the CDS ocean, naked or not." (Close enough for government work.)

Wed, 10/26/2011 - 23:44 | 1815873 Harlequin001
Harlequin001's picture

'(Close enough for government work.)' - Now, where have I heard that saying before? The military, perhaps...

Wed, 10/26/2011 - 23:46 | 1815884 dark pools of soros
dark pools of soros's picture

they do still use hand

Wed, 10/26/2011 - 23:59 | 1815931 Harlequin001
Harlequin001's picture

I thought it was all done with cruise missiles these days...

hand grenades are so... yesterday...

Thu, 10/27/2011 - 00:01 | 1815936 Oh regional Indian
Oh regional Indian's picture

It's Predators Droning on now actually. Cruise misslies are so yesterday, nein?


Thu, 10/27/2011 - 00:21 | 1815981 Harlequin001
Harlequin001's picture

I thought the only thing 'droning on' these days was the ECB.

On the subject of Predators, I was thinking of building myself a model aeroplane and going to war with a few small countries myself...

Thu, 10/27/2011 - 00:28 | 1816000 UP Forester
UP Forester's picture

Anyone know what it'd take to scramble a Predator uplink?

Just for educational purposes, of course.

Thu, 10/27/2011 - 00:47 | 1816044 Harlequin001
Harlequin001's picture

Yep. A Browning 9 mil at the back of the head and a 'Hand over your password or I shoot your dog...'

Thu, 10/27/2011 - 01:31 | 1816124 UP Forester
UP Forester's picture

Damn.  I'm way too far away from Nevada to do that, I guess I'll have to figure out how to build an EMP device.

For educational purposes, of course.

Sun, 02/26/2012 - 00:04 | 2196968 haibop
Thu, 10/27/2011 - 07:03 | 1816448 Mitzibitzi
Mitzibitzi's picture

Basically, you can't, absent a pretty powerful broad-spectrum jamming suite, which would simply make you a peachy target for an anti-radiation missile.And even that wouldn't work very well if the link is tight line-of-sight.

It's frequency agile and encrypted a bunch of ways. I know more or less how that kinda shit works (I worked on similar stuff when I was in the RAF) and I'm pretty sure (99+% sure, in fact) I couldn't do it, even with schematics of all the hardware and copies of all the code. Nor would I want to! You start messing with systems like that and innocent people are gonna get killed if it goes out of control and crashes somewhere. A couple of Hellfire warheads and a bunch of fuel would make one hell of a mess in a residential area.

I imagine they'd be pretty well shielded against EMP, too. Certainly would be if I'd designed the thing. Which leaves you the 'go up there in your Cessna and shoot it down' option. And they can shoot back, ya know.

The only hope against most modern military weapons is that the operators may refuse to employ them against domestic civilians, no matter what 'terrorist' bullshit reason they're given for doing it.

Also bear in mind that if it ever comes to military action against a domestic population in open insurrection, the dust will be wiped off all those cluster bombs, FAE bombs and hyperbaric weapons we're too civilised to use against foreigners (when the media might be watching, anyway!). Civil wars are almost always far more brutal than the foreign ones.


Thu, 10/27/2011 - 05:46 | 1816361 prophet
prophet's picture

Reapers.  Behind the times.


Tue, 03/13/2012 - 22:38 | 2252824 haibop
haibop's picture

may not be that effective. incline treadmill

Wed, 10/26/2011 - 23:29 | 1815817 maxw3st
maxw3st's picture

"...the only bridge in the chasm between Mark to Unicorn and reality..." Pay no attention to the man behind the curtain. But CDS holders will be looking for theirs. And rightfully so.

Wed, 10/26/2011 - 23:32 | 1815830 tekhneek
tekhneek's picture

"Do you see what happens Larry? When you fuck a stranger in the ass? DO YOU SEE WHAT HAPPENS?!"

Wed, 10/26/2011 - 23:32 | 1815831 Dr. No
Dr. No's picture

The selective write down on selective bonds is Sarc killing off his political enemies. Business as usual in politics. Just dust off your 2008 Fed playbook to see who was on the side of the Fed shareholders and who wasn't. Same goes with Europe. If you look to see who got a haircut, you will quickly find the list of Sarc's foes.

Wed, 10/26/2011 - 23:36 | 1815840 kito
kito's picture

from reuters:

"The debt is absolutely sustainable now," Papandreou told a news conference after a meeting of euro zone leaders, which reached agreement with private investors on the 50 percent writedown.

Papandreou added a promise that Greece would produce no more primary budget deficits from next year.


Mon, 11/14/2011 - 21:07 | 1877728 haibop
haibop's picture

this could be serious... power4home pro

Wed, 10/26/2011 - 23:36 | 1815843 BillyBoy22
BillyBoy22's picture

You guys will tell me when its time to start stockpiling weapons right

Thu, 10/27/2011 - 00:29 | 1816004 UP Forester
UP Forester's picture

About 3 years ago....

Thu, 10/27/2011 - 01:31 | 1816122 DoChenRollingBearing
DoChenRollingBearing's picture

BB22, UP is correct.

Old Chinese saying (really, no joke):

"The best time to plant a tree was 20 years ago.  The second best time to plant a tree is NOW."

Wed, 10/26/2011 - 23:36 | 1815844 AndrewJackson
AndrewJackson's picture

What was morgan stanley saying again about european sovereign risk net of hedging?

Wed, 10/26/2011 - 23:40 | 1815864 Sequitur
Sequitur's picture


Wed, 10/26/2011 - 23:53 | 1815876 Dr. No
Dr. No's picture

I believe morgan transferred all those risk assets to the parent, BOA. In that way, the losses would be dumped onto FDIC rather than the FED when BAC goes bankrupt in the near future.

EDIT: my error. I was thinking merrill lynch, not Morgan. BAC own Merrill.

Wed, 10/26/2011 - 23:53 | 1815908 azusgm
azusgm's picture

No, Dr. No. That was Merrill.

Not to worry. It is hard to tell the fraudsters apart.

Wed, 10/26/2011 - 23:54 | 1815916 Dr. No
Dr. No's picture

Yes. I added edit note same time as you replied. Thanks for watching post accuracy.

Wed, 10/26/2011 - 23:58 | 1815925 Alea Iactaest
Alea Iactaest's picture

Merrill + BAC is kinda like MS + MUFG. But I think the point is Merrill not Morgan Stanley.

Wed, 10/26/2011 - 23:38 | 1815851 winter is coming
winter is coming's picture

Still bullish

Wed, 10/26/2011 - 23:53 | 1815909 winning
winning's picture


Wed, 10/26/2011 - 23:41 | 1815866 Seasmoke
Seasmoke's picture

is this changing the definition or changing the rules in the middle of the game ?

Wed, 10/26/2011 - 23:44 | 1815877 dark pools of soros
dark pools of soros's picture

who run barter town?

Wed, 10/26/2011 - 23:45 | 1815882 tom a taxpayer
tom a taxpayer's picture


Wed, 10/26/2011 - 23:53 | 1815868 Comay Mierda
Comay Mierda's picture

Sovereign bonds will plummet tomorrow

Thu, 10/27/2011 - 00:00 | 1815934 Alea Iactaest
Alea Iactaest's picture

Then there should be some banks trading lower tomorrow... unless one of those pesky unicorns shows up.

Tue, 02/21/2012 - 01:16 | 2180071 haibop
haibop's picture

opportunity... surveys4income

Thu, 10/27/2011 - 00:54 | 1816061 hondamikesd
hondamikesd's picture

This would be the sane response, thus is unlikely to happen. In this market I halfway expect Italian debt to rise to parity with U.S. debt by the end of the week. I wish I was kidding but the "jacked up on PCP "insanity"" trade is the only thing that seems to be working right now.

Thu, 10/27/2011 - 01:20 | 1816099 in4mayshun
in4mayshun's picture

No, they'll need a weekend for it to sink in.

Wed, 10/26/2011 - 23:42 | 1815869 dark pools of soros
dark pools of soros's picture

can't taxpayers in 2020 pay the other half??  we should be able to tax Mars or the Moon by then

Wed, 10/26/2011 - 23:47 | 1815885 equity_momo
equity_momo's picture

I think i just had a stroke trying to understand europe and the markets. It might be time to just hang out at tmz until the 4 horsemen kick down my door. This is pointless.

Wed, 10/26/2011 - 23:58 | 1815927 knukles
knukles's picture

It really is.  Best for shits, grins and ridicule.
Seriously.  Maximum untility is pure entertainment.

Jezzz that's a damning statement....

Sat, 11/19/2011 - 14:33 | 1894305 haibop
haibop's picture

funny comment... walk in freezer

Thu, 10/27/2011 - 03:21 | 1816253 e-recep
e-recep's picture is fun, too. I used to abhor celeb sites but at least what they report is real and makes sense.

Wed, 10/26/2011 - 23:49 | 1815894 dr.charlemagne
dr.charlemagne's picture

so, if this gets done, then every other soveriegn expects the same treament, then government bonds are uninsurable toilet paper, then gold and silver are the only store of value left which is safe from the plutocracy? is that it? will even Portfolio managers get it now?

Wed, 10/26/2011 - 23:51 | 1815901 jeff314
jeff314's picture

better get the metal my friend paper is worthless


Thu, 10/27/2011 - 00:38 | 1816023 wandstrasse
wandstrasse's picture

as long as you have to pay fiat to buy PMs, and as long as legislation, police and military are potentially able to conjure your PMs back to worthless, you (and I) are f***ed.

Wed, 10/26/2011 - 23:50 | 1815895 broke433
broke433's picture

Finally! Fas, tna, xxv are go time!?!?!

Wed, 10/26/2011 - 23:54 | 1815905 bob_dabolina
bob_dabolina's picture

It is a credit event. 

If this isn't a "credit event"

What is?

Thu, 10/27/2011 - 00:01 | 1815935 knukles
knukles's picture

My wife and daughter lightening my money clip.

Thu, 10/27/2011 - 01:19 | 1816095 in4mayshun
in4mayshun's picture

According to WSJ, ISDA says this is not a credit event because it is "voluntary."

Thu, 10/27/2011 - 02:21 | 1816191 Dr Zaius
Dr Zaius's picture

And what power grants the European Leaders to "volunteer" priavate debt holders to take a 50% hit? If the private party demands payment in full, are they then "volunteered" to get 0%. If hedged, that debt holder can then collect on the CDS to get 100% of the principal back. How would a hedged debt holder ever volunteer to a 50% loss under these circumstances?

Thu, 10/27/2011 - 07:10 | 1816467 Mitzibitzi
Mitzibitzi's picture

Because they know that pulling that trigger will very soon result in the CDS issuers telling their supposed creditors to go fuck themselves?

Wed, 10/26/2011 - 23:55 | 1815917 Skunkmonger
Skunkmonger's picture

Barclay's "it's a hard credit event unless we get our share,"

Thu, 10/27/2011 - 00:08 | 1815943 Alea Iactaest
Alea Iactaest's picture

Anybody know how much CDS Barclay's is holding? And what their exposure is if said CDS are not paying?

Edit: spelling

Thu, 10/27/2011 - 06:35 | 1816393 goldenbuddha454
goldenbuddha454's picture

How many lawsuits will result from this 50% "voluntary" writedown?  This is going to be a mess anyway you look at it.  Hedgefunds suing banks, investors suing hedgefunds etc... etc....

Thu, 10/27/2011 - 03:24 | 1816254 e-recep
e-recep's picture

Yep, Barclays belongs to Rothschilds.

Wed, 10/26/2011 - 23:56 | 1815924 azusgm
azusgm's picture

The first person who finds a response from Kyle Bass, please post.

Wed, 10/26/2011 - 23:58 | 1815929 dr.charlemagne
dr.charlemagne's picture

it would seem that confidence in all gov't paper is going to suffer enormously, which should cause interest rates to rise, which should make everyone more insolvent than they already are. cds trigger or not its a default, a sovereign default

Thu, 10/27/2011 - 00:16 | 1815973 jdelano
jdelano's picture

I am thinking is too--I don't see how the reaction in he bond market isn't VICIOUS and immediate. Could his be a major fuck up? Could the credit markets melt down right away? Or in other words--would anybody here buy Italian bonds at 7%? 8%?

Thu, 10/27/2011 - 01:21 | 1816101 John_Coltrane
John_Coltrane's picture

KMP pays 7-8% yield and they own 80,000 miles of gas transport and oil pipelines with paying customers for cash flow for vital resource, energy.  So, no I'm not selling my KMP and buying Italian bonds "guaranteed" by the Italian "taxpayer" at 7, 8, 10 or even 20%.  I like return of capital as much as return on capital! 

Thu, 10/27/2011 - 06:39 | 1816400 disabledvet
disabledvet's picture

actually no this is not a sovereign default. it's just the usual "FUCK YOU ENGLISH BANKER" nazi bullshit. Can't wait to see what the "Chinese rescue" looks like since they're the biggest holders of the CDS contracts. So much for the "Germans don't like inflation" mularkey. "WE'VE LOVE IT PHUCKERS! WE LOVE IT!"

Thu, 10/27/2011 - 00:06 | 1815947 Hansel
Hansel's picture

I'm glad I am not a counterparty to any of the clowns involved in this show.

Thu, 10/27/2011 - 00:09 | 1815952 broke433
broke433's picture

Not a credit event

German and Greek newspapers argue that investors should brace for losses between 50% and 60% but they do not provide details as to whether this would imply notional haircuts or whether it would be done through drastic reductions of the coupon and/or extension of maturities.

Thu, 10/27/2011 - 00:23 | 1815984 dr.charlemagne
dr.charlemagne's picture

just gut the value at maturity in half. the market can discount the future value to get present value and yield.

Thu, 10/27/2011 - 00:14 | 1815967 MGA_1
MGA_1's picture

Just in time for BoA to bail everybody out... sigh...

Thu, 10/27/2011 - 00:20 | 1815980 Jim in MN
Jim in MN's picture

Yes, Virginia, a partial default is a credit event. If you 'agree' to hand over insured property to a burgler instead of making him shoot you, you still file a claim.

Without Greek threat of actual default there would be no haircut.

Thu, 10/27/2011 - 00:27 | 1815996 Jim in MN
Jim in MN's picture

Tyler, here's the form to request a credit event determination. Have fun.

Thu, 10/27/2011 - 00:29 | 1816003 apu123
apu123's picture

This will just start the rip-fest off in the markets Thursday.  Nobody cares about the details, all the bench warmers on CNBC and Bloomberg are touting this as the second coming.  I bet everything goes up tomorrow.  My guess is the DJI is up 400 points tomorrow with a fluffed GDP number and unemployment numbers combined with this "good news".

Thu, 10/27/2011 - 00:39 | 1816028 Fibz
Fibz's picture

Dollar rises on higher GDP.

Thu, 10/27/2011 - 00:55 | 1816063 adr
adr's picture

But the dollar must fall to get a GDP rise in the first place

Thu, 10/27/2011 - 00:34 | 1816014 bankonzhongguo
bankonzhongguo's picture

Here's an idea.

Let's take the entire membership of the International Swaps and Derivatives Association out back behind the barn and shoot them.

That might solve the problem.  Kind of hard to have a meltdown if there is nobody around to make a CDS claim.  I know a ton of smart people paid bad money for CDS and other bullshit contracts, but just suspend these settlements while we workout the fraud-closure problems. National Security.  Oh wait, that is for the forthcoming commercial bank holiday.

The rest of human society could go about their business of living productive lives rather than toiling in debt bondage to solve other troublemakers' fake gambling debts.

Here is a membership list right here.  Wait a minute.  Here's a longer list of related directors, senior executives and a gaggle of other related folks that "earn" more than 3 standard deviations from the average Americans' income.

And yes.  Dear OWS.  Try actually moving your sideshow to the steps of the NYSE.  What happened to Audit the Fed? You crypto-Obama-niks are selling the Republic down the river FOR the banks.

Thu, 10/27/2011 - 00:38 | 1816021 pauldoc1
pauldoc1's picture

So this means that I can write down 50% of my mortgage and not have it affect my credit and the bank can't collect on the insurance right? 

Thu, 10/27/2011 - 00:52 | 1816056 adr
adr's picture

Dude, not only can you writedown 50% of your mortgage you get to collect on the insurance at the full value of your home before the writedown.

Fuck, you just got 100% richer overnight!!!!!!

Thu, 10/27/2011 - 00:53 | 1816059 wandstrasse
wandstrasse's picture

this is the natural condition of fiat debt - it is not backed by any asset of any creditor, and thus no creditor whips the debtor to get his asset back... exept for 99.99% of the population, whom the 0,01% whip ever harder to get everything for nothing.

Thu, 10/27/2011 - 02:36 | 1816209 DavidAKZ
DavidAKZ's picture

Check that your bank has on sold the loan and associated title deed so that the originator can't proove proof of ownership. Then the bank can't take the house off you when you strategically default.

Fri, 11/11/2011 - 00:36 | 1868966 haibop
haibop's picture

Keep dreaming on a nice memory foam mattress my friend...

Thu, 10/27/2011 - 00:39 | 1816022 pauldoc1
pauldoc1's picture

Thu, 10/27/2011 - 00:50 | 1816047 adr
adr's picture

I've decided to go full retard. Ever notice that retards seem to have more fun. Look how much fun the bankers are having. They don't have to worry about things like math or facts because they are too stupid to understand them. In the land of idiots these guys can act like they are the smartest people in the room.

The happiest people I know are the dumbest people I know. They are just too stupid to see anything other than the toddler level of intelligence which they operate. I swear my two year old is smarter than any of these clowns in Europe. The kid can already unlock a car door with a key and start the engine, thank god for the shift lock. Fuck I think he could win the nobel prize in economics. If I give him four blocks and tell him to count to five, he'll say no daddy four blocks. HE'S ALREADY SMARTER THAN BERNANKE BECAUSE THAT ASS STILL THINKS HE CAN MAKE FIVE OUT OF FOUR!!!

We all need to go get a can of spray paint and huff till we kill 90% of our brains. I guarantee going full retard will make you a lot happier. As the world collapses you'll be dancing like an idiot in the street proclaiming ooooohhh colors pretty.

Thu, 10/27/2011 - 00:51 | 1816055 Zing
Zing's picture

Nothingburger.  NOT

Thu, 10/27/2011 - 01:03 | 1816080 3rivers
3rivers's picture

I don't get it.  We have an opportunity for teh CDS market to show that it can do what it is supposed to do.  Provide insurance for losses.  Why is this a problem?  This is what the Mother of All Markets is all about.  Insuring losses. So why do we have a problem?  If the CDS issuers don't make good on loss coverage them then claw back every penny they are anyone they are associated with has and put the lot of them in jail until they rot.

Thu, 10/27/2011 - 02:32 | 1816200 DavidAKZ
DavidAKZ's picture

Why is this a problem?  Because the 'money' to pay them only exists in on the public balance sheet over several generations of future tax payers together with the destruction of the social contract in any particular and former sovereign nation of your choice - Get it ??


Thu, 10/27/2011 - 03:57 | 1816286 Threeggg
Threeggg's picture

Bingo - as the money does not even exist.......yet. With a 6% reserve where is the money going to come from ?

Thu, 10/27/2011 - 07:18 | 1816480 Mitzibitzi
Mitzibitzi's picture

Exactly, the only option for the issuers of the CDSs, after maybe paying out on the first handful of claims, is to admit that they don't have the money to pay anyone else. And the 'management' will have cleaned out the company accounts and headed to Rio for cosmetic surgery weeks before that actually happens. One thing you can count on a rich cunt to do is fuck whoever necessary to stay a rich cunt.

Thu, 10/27/2011 - 02:34 | 1816201 Dr Zaius
Dr Zaius's picture

I don't get it either. Two choices here. Either it is a credit event and we see a lot of pain in the institutions that need to honor the CDS or risk can no longer be hedged as CDS contracts are nullified, causing the derivatives market collapse like a house of cards. Which is it?

Thu, 10/27/2011 - 05:28 | 1816353 Augustus
Augustus's picture

There will have to be Haircuts taken on the Haircut Insurance.

Note that ECB takes NO Haircut on the cramdown.  But they will present it as if they will be paid at maturity.  Now they simply have to find someone to believe that.

Thu, 10/27/2011 - 01:16 | 1816093 Dingleberry
Dingleberry's picture

This is AIG times a bailing this shit out. No way.  The only alternative is to declare a "non-CDS event" and go home.  A lot of swaps will cancel each other out, but when you are talking trillions upon trillions......all hell will break loose if they are activated.

Thu, 10/27/2011 - 07:24 | 1816490 Mitzibitzi
Mitzibitzi's picture

I could actually see that happening by the end of the game; allowing that the object is to save the system in some form, at least. Electrons shuffle around mightily and everyone agrees that they're owed as much as they themselves owe if you follow the paper trail all the way round. And Bill gets a note telling him he owes Ted $11.74, which will settle the total global debt.

The thing was built on bullshit, so why not settle it with bullshit, so long as no-one 'truly and righteously rich' has to lose out? 

Thu, 10/27/2011 - 11:16 | 1817285 Marco
Marco's picture

It won't net to 0, the trade deficit countries are deep in the hole ... and they are dependent on getting deeper and deeper to keep access to the cheap oil they need to maintain their standard of living.

Thu, 10/27/2011 - 01:50 | 1816155 apu123
apu123's picture

I have been out of the market since June.  I have been fighting the temptation to jump back in due to this situation in Europe.  I feel I too would be happier just going full retard, my buddy said I was a dumb ass for not riding the latest ramp up after I tried to explain the "math" of the situation and I am beginning to think math does not matter anymore.  So maybe he is right.

Thu, 10/27/2011 - 02:28 | 1816198 Dr Zaius
Dr Zaius's picture

I'm in the exact same situation -- on the sidelines in cash since June. I've got a hard decision to make in the coming week if the markets somehow see this clusterf**k as bullish.

Thu, 10/27/2011 - 02:01 | 1816171 Dr Zaius
Dr Zaius's picture

So, if I call up the bank holding my mortgage and tell them I'm only paying them 50% of my principle and they have to eat the rest, they would not consider that a credit event? Really?

Thu, 10/27/2011 - 02:34 | 1816204 caerus
caerus's picture

there's always this...jupiter and beyond the infinite

Thu, 10/27/2011 - 02:49 | 1816216 MS7
MS7's picture

I don't know anything about economics, but won't the credit agencies classify Greece as being in default regardless of what the Europeans say?

Thu, 10/27/2011 - 02:53 | 1816226 Dr Zaius
Dr Zaius's picture

Not if the credit agencies have a 9mm pressed against their skull.

Thu, 10/27/2011 - 02:50 | 1816218 LookingWithAmazement
LookingWithAmazement's picture

Euro saved. No Lehman, crisis, collapse, meltdown, Armageddon. Told you sooooooooooo. Stop about those CDS or banking funding problems. All can be solved. The whole circus will soon move to DC where the "United States Congress Joint Select Committee on Deficit Reduction" will bring out report in November, after which the austerity fights can (or should) begin. Bring in the popcorn.

Thu, 10/27/2011 - 02:57 | 1816230 pcrs
pcrs's picture

In the short run, this is probably good for those having to pay out cds on a credit event, in the long run the CDS are dead, or will be superseded by a real CDS, or lenders will evaluate risk themselves carefully again. The latter would not be that bad.

Thu, 10/27/2011 - 03:26 | 1816257 terryfuckwit
terryfuckwit's picture

CDS is merely a bankers proxy for "tax payer backstop"... bend over and smile folks

Thu, 10/27/2011 - 03:54 | 1816282 Jeff the Gorilla
Jeff the Gorilla's picture


If Greek CDS doesn't pay out - The Eurocrats not only leveraged the ESFS but all the banks in the process.


Thu, 10/27/2011 - 04:04 | 1816298 Youri Carma
Youri Carma's picture

Huh! You rae not allowed to cut debt while inflating your coin isn't perfectly sane currency politics either.

Thu, 10/27/2011 - 04:43 | 1816327 css1971
css1971's picture

Whether they say it is a credit event or not... It is a credit event.


So. You bought some Greek (or other PIIS) bonds a while back and some insurance just in case, and are now being made to take a 50% cut in their value and told that your insurance is worthless?

Seems to me like CDS are worthless and the sovereign bond bubble just popped. i.e. lower values, higher yields, higher interest rates for the forseeable future. And where do you go if you want safety with a 50% cut in sovereign bonds?


Thu, 10/27/2011 - 05:31 | 1816354 Augustus
Augustus's picture

Bernie is no longer available as a choice since he is jailed.  He may have been a better risk though.

Thu, 10/27/2011 - 06:17 | 1816379 falak pema
falak pema's picture

I don't have much faith in any mouth blabbering by a TBTF bank like Barclays. They just speak for their own crowd in the end. Not as fair givers of financial advice. Sarkozy/Merkel just called their bluff. Somebody had to.

Thu, 10/27/2011 - 06:29 | 1816387 M.B. Drapier
M.B. Drapier's picture

Just heard Mr. Geen from the ISDA on Bloomberg telly saying that they expect to find the haircut voluntary even though, quote, "there's clearly been a lot of coercion". Unfortunate choice of words, at best.

Thu, 10/27/2011 - 07:02 | 1816445 goldenbuddha454
goldenbuddha454's picture

Just a question:  If in December 2009 the ISDA Determinations Committee voted AIFUL a "restructuring", which if I'm correct, is a criteria for a "credit event", then how can Greece's 50% writedown not be considered a restructuring?  Just curious how that works exactly. 

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