Euro Gyrates On Fitch Announcement Greek 50% Haircut To Be An Event Of Default

Tyler Durden's picture

The reason why the EURUSD took a big step lower in the past minutes is because Fitch has come out with a note in which it has assigned an AAA rating to the amended EFSF program. That in itself is not an issue, what is however, to the market is the announcement that a 50% Greek haircut would be an event of default. That said this is not to be confused with an ISDA determinations committee ruling that CDS has been triggered: we now know this will never happen and is the reason why basis trades across the board are exploding as all sovereign CDS is effectively being unwound. Regardless, the market does not seem to be liking the fact that someone's head is not stuck in the sand. Fitch also adds that it is critical that ECB carry on bond purchases, something which neither the ECB nor Germany have agreed to. It also adds that Greek PSI deal is a necessary step, and that the effectiveness of the summit deal depends on details. This is important considering Greece was barely able to get 85% acceptance in its 21% proposed haircut. The 50% will be even more interesting. Fitch concludes that the market is likely to see further market volatility. That is a given.

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Cassandra Syndrome's picture

Fitch's smackdown, bitchez

gojam's picture

The use of the word 'Default' by Fitch is a diversion.

Fitch the French Credit Rating Agency has just given a AAA rating to an EFSF program despite not having the "details" which it says the effectiveness of the summit deal depends. CDO all over again.

FunkyMonkeyBoy's picture

The rating agencies are just another tool in the FEDs tool box.

And, on a related topic, the Bernank needs to hang for treason.

holdbuysell's picture

Speaking of treason, it's been documented throughout history that banks have funded both sides of wars.

When countries go to war again and GS, et al are funding all sides of the conflict, it seems this would be a threat to US national security (enabling the enemy) and thus should be considered treason or some other serious crime(s) against the State.

pods's picture

Yeah but the banks are married to the state.  Not gonna happen.  


LeBalance's picture

Treason?  If the Bernank were a US citizen that would be true.

If Geithner were a US citizen that would be true.

But they are not.  So treason does not apply.

They are employees of the owners.


Certainly they may be sacrificed in play to such a charge, but the way they understand the game, and from a legal standpoint, they are ex-US.

Just like all Attorneys. < Members of the Bar.  Agents of a Foreign Power. lol. The Bank.  "City of London?" :)

Enkidu78's picture

From Telegraph.


10.40 And a bit more Greece - while the country itself gets some breathing space by wiping away 50pc of its debts, what of the people who lent them the money in the first place?

Unsurprisingly, many of the lenders to the Greek government were Greek banks. Now, the Greek government says it will most likely to have to nationalise large parts of the banks as a result of the write-downs. Shareholders in those banks could lose all of their investment as a result.

Andreas Koutras, an analyst at InTouch Capital Markets, said:

Greek banks never had choice on whether to buy Greek bonds, and they’re now being punished. It is possible equity valuations will go to zero.

Vampyroteuthis infernalis's picture

Their own crony gov't screwing the sheeple. Sound familiar?

ElvisDog's picture

Also, it's a big hit to Greek pension funds, who have a large position in Greek govt debt.

Mr. Lucky's picture

That can keeps getting bigger and bigger.

Irish66's picture


chubbar's picture

When are they going to start talking about the fact that the 50% haircut is not enough to stop a default of Greece? If you are going to throw a Hail Mary pass you don't have the receiver stop to catch it at the 50 yard line.

amscott8's picture

Somehow this will be perceived as good.

firstdivision's picture

Quit muddling the world with reality and truth.

LookingWithAmazement's picture

"all sovereign CDS is effectively being unwound"

Bye bye financial weapons of mass destruction. All countries can go bankrupt without any troubles now.

Ghordius's picture

meanwhile the concept of yield could become meaningful again

"risk free"? what a joke, and look how long it is going on

thedrickster's picture

Ruh-roh, yield would be VERY problematic to government.

Cursive's picture


So, there IS a silver lining to ISDA's sellout.  Oh, the law of unintended consequences.

littleguy's picture

yeah I agree, the equations are all fucked.


Implicit simplicit's picture

If insurance will not guarantee protectiion than yields must rise

Taint Boil's picture



From Mish, what ? they are no good now ?? I am confused

As a result of labeling 50% haircuts "voluntary", Credit Default Swap contracts have proven to be useless when it comes to protecting against sovereign default. The serious implication is investors will need to find another way to hedge.

KABOOM - that problem gone ........... next

stopcpdotcom's picture

Is there going to be a lot of litigation over the CDS contracts?

Surely they are individual contracts and not necessarily dependent on what ISDA says about a CDS event being triggered.

Ghordius's picture

sorry, could not care less

BAN CDS (I'd say "regulate" but it's a very elastic word, isn't it?)

Matt's picture

While we're at it, let's ban all forms of insurance. That way everything will have risk priced in.

SRV - ES339's picture

Is there going to be a lot of litigation over the CDS contracts?

In a word, no!

Clearly, the big banks would realize serious losses in any sovereign default... so they simply change the rules and save their massive CDS profits... fair, ethical, legal? Of course not, but since when has that been a factor.

... waitng for OWS to "go postal" and start taking a few of them down!

Sivad UK's picture


I currently own GGB 5.25 12 in my PA. I bought them yesterday at 50. As forcing me to tender into any exchange will constitute a default - what's my downside? I fully expect to receive 100 + Interest in May.

Anyone disagree?


(Clearly I understand I have massive political tail risk and risk of a disorderly default from now until 15/05/2012 - I am asking the question based on current announcements and to point out the huge 'Free Rider' issue...)

El Gordo's picture

The discussion as to "how much" and "when" is so much idle chatter.  The money was lost when the bonds were purchased, not next week when we decide how much loss to "recognize."  That's just book keeping.  The facts are simple - they can't pay back what they owe, and they will never be able to pay back what they owe.  They may be able to shuffle the debt around among friendly parties for a while, but the fact it that the money is gone. I recall the old S & L saying "a rolling loan gathers no loss."  I prefer the concept of peeing in the bed to keep warm - it feels good for a minute or so, but then it gets real cold.

Boilermaker's picture

XLF down almost 1/8 of a percent pre-market after being gunned 30% in 10 days!  This could be the breaking point.

UPDATE:  Nah, it's going postive.

Boilermaker's picture

Reggie ia always right.  Just ask him and he'll tell you all about it and even cherry pick some evidence to prove it.

homersimpson's picture

You should give him more props than that.. Robotrader he ain't and never willl be.

I really don't know why some of you really dislike him. Maybe because he supposedly brags about himself.. but it ain't braggin' if you can back it up.


Boilermaker's picture

Who said he was wrong?  I just said he's extremely self promoting.

Ted Baker's picture


max2205's picture

They are from France...enought said

junkyardjack's picture

Well at least they are still keeping up the rumors of something happening which will later be contradicted with another press release on 3 days later.  I was beginning to worry that markets would start functioning again.

msmith's picture

The EUR will falter big soon.  The USD seems set to return to a bullish move higher which could be very signicant and signals big moves for the markets as very near.  The ES and SPX are set for another small push higher to complete their waves, while the EURUSD, USDCAD, and AUDUSD all point towards a bottom for the USD.

Scalaris's picture

More sand needed asap.

campag's picture

does this mean Hedge funds that have bought CDS to make gains on Sovereign weakness has made a pointless expensive bet? Does this include Hugh Hendry with his Japan/Chinese bets? 

Matt's picture

I was under the impression Hugh Hendry was using options contracts, not CDS for his Japan / China play? At least, that's what I got from that hour-long LSE talk.

jmc8888's picture

What magic monetary masters come up with.  What sophistry for the masses.

Attempt to make CDS worthless by arbitrarily saying a credit event won't hit, it causes people to unwind their positions, pushing the money somewhere else woo hoo.  Also frees up the posting of collateral on the trades.  Big boon for banks.   (of course it will have an effect, just look at the euro is fixed announcements)

Call this QE X.1 

Of course, only some of the monetary masters are decreeing it this way, others as said above want it to be labeled a credit event.

What are the real rules of monetarism? Well whatever bogus sophistry argument passes the perception management test.  If people can believe it isn't a credit event, then it isn't.  If they don't, it is, but first let them hold another forum to change the plan again. Ah yes, Aristotle at his most insane.  If everyone agrees to believe dogshit is caviar, then it is caviar. Our world is made of this.  How sad.

Of course as Reggie pointed out (through one of his readers), each contract is different, and thus if no credit event happened is decreed, then the issuers will try and not pay (mostly banks imo), and thus lawsuits will be filed by the holders.  So what does this mean?

Well again, it's all about perception management.  Basically sophistry.  It'll have the desired effect of lowering CDS's because...

a) Some will believe that they won't be paid out

b) Weaker hands, and especially individuals, won't participate because if the only way to get the money is to file a lawsuit...that's a hassle many won't want to initiate a trade knowing this.

c) Any funds in court will take time to resolve, thus buying there is always some leakage in the amount outstanding and how many will actually go to a lawsuit.  In some cases, people may make settlements for even less, and under the radar. 

Wow, what a great system monetarism is. Where believable bullshit is the bedrock of the status quo.

With everyone focused on this nonsensical crap, who is focused on the physical economy? Who has time or mental energy to actually build anything needed and useful, even transformational after the 'Days of our Lives' soap opera that is monetarism in practice?  Oh yeah, the physical economy went out the window 40+ years ago. As did the scientific progress to keep it running smoothly.