Farce Is Complete As ISDA Finds 50% "Haircut" Is Not A Credit Event
And, as expected, here is ISDA with the most farcical of decisions. From Reuters: "A new voluntary deal for holders of Greek debt to accept deeper losses is unlikely to trigger a 'credit event' that would cause a payout on default insurance, said a top lawyer at the International Swaps and Derivatives Association. Greek bondholders face losses of 50 percent under a plan to lower the country's debt burden and contain the euro zone's long-running debt crisis. The aim is to complete negotiations on the package by the end of the year. But because participation in the deal is voluntary rather than forced, it would typically not trigger payment on CDS contracts. "As far we can see it's still a voluntary arrangement and therefore we are in the same position as we were with the 21 percent when that was agreed," said David Geen, general counsel at derivatives body ISDA, referring to an original deal proposed in July that involved smaller bondholder losses. "The percentage (of losses), as far as the analysis for CDS purposes goes, doesn't change things. typically a voluntary arrangement won't trigger the CDS." Geen said the final decision on whether a credit event has occurred rested with the ISDA determinations committee, which would consider the issue when requested to do so by a CDS market participant." The fact that the decision is "voluntary" under duress from an entire political system which realizes its ponzi structure is collapsing is seemingly irrelevant. Luckily, the market is not all that stupid and the preliminary reaction is as expected, and to paraphrase Willem Buiter, "Failure to trigger Greek sovereign CDS when economic logic indicates this ought to occur would likely be detrimental to financial stability." But that's irrelevant. The EU has kicked the can down the road. Now it is literally a race for the fade to discover who is first to realize that as Zero Hedge and now RBS chimes in, "the EFSF is still too small to restore investor confidence."
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Green bitchez. Bwahahahaha
Brothers,
It may seem like a joke. But it's a start.
How much of a haircut did Goldman have to take?
Angie Merkal has balls.
Let's see where this leads before we shit on her head.
http://geraldcelente.proboards.com
The Farce is strong with this one.
what the hell is taking the greeks so long to realize they just got royally PHUCKED?
Pretty amazing PR campaign to make this a market positive. Weeks and months of no solution, then suddenly, "We Have A Deal!" and everyone cheers. Had it been something like weeks and months of no solution and then "Greek Bondholders Forced to Accept 50% Losses!" maybe the market reacts differently.
I think this will be the last pop to this rally. The ripple effects are yet to be felt, and when the hopium wears off, we get the next leg down, and it will be a doozy. It will be interesting to see just how much higher the markets will rise, and for how long. My bet is this initial pop will be most of the rise and it buys maybe another two weeks before the markets roll over. But that's just me. I got off the hopium a couple of years ago.
Probably the fact that they were just forgiven 50% of their government debt. Sweet!
definitely it is!
agree how to
The only way this determination was made was if dealers were in on the joke and had a short basis trade on.
None of these guys lost a $%#@ dime. Except guess who.
Well, according to an earlier post the only losers are the Greek pension funds, and I have no problem whatsoever with that...
Now let's see how long these pension funds take to refuse to eat this 50% loss unless everyone else does or at least takes some, and throw the whole lot into turmoil again. Until we then have an actual default...
Either that or I can see one or two Greek pension fund managers running around in fear of their lives...
Yeah is this a case of the politicians getting together and agreeing that all the bondholders will 'voluntarily' agree to the haircut, without having actually had any of the bondholders voluntarily agree to anything? I really can't imagine that did a poll of anyone that holds greek debt to find out how they all felt about it...
Also, aren't we talking major moral hazard here now? If you're portugal, or Italy or Ireland, Spain etc... Wouldn't you be sitting up saying "Party on wayne, if our debt gets out of control we'll just get everyone to volunteer to cut it in half!!". For that matter, who the FFFFFF would buy EU government debt now?!
What I don't get is that the same people that want EU banks to boost tier 1 capital by <who knows how much in euro terms> are the same people that seem instrumental in destroying their hedge book. Much more, they have introduced huge moral hazard into all european government debt.
This is more than stupid. More than "Trichet stupid". This is stupid on a whole new level.
I'm just not following...
Supposedly it's voluntary. Why would anyone that holds the bonds, plus CDS, volunteer on a 50% haircut with no credit event? I could see why someone without insurance might volunteer for the haircut (vs complete default) but even that's a stretch.
The 'volunteer' aspect of it all just doesn't seem to make any sense. Or is this similar to the way we all volunteer to have our balls groped when going through airport security?
ISDA Sorry....you don't get to trigger the default until there is a 99.9% loss.....NEW RULE!! Sucks to be you!!
this is no funny! memory foam mattress
Insurers denied home owners in Australia flood damage payouts, because the damage was caused by rising waters downstream, not from torrential rainfall in their area.
Insurance is a gyp. They make the rules up on the fly to suit their bottom line. In this case it seems that the banks will take a 50% haircut on their bonds and be paid for the losses by the ESSF, that prints the money and taxes the masses through inflationary dilution.
What I don't get; where does a group of bankrupt nations get the money to pay themselves. If euros don't emanate from the ECB, then where do they come from? Tokens in a cornflakes box?
Your beeing a little hard on those poor girls
bloons tower defense 5
Because voluntary has been redefined as mandatory
The difference between sex and rape...
oooh right! walk in freezer
Is it truly "mandatory"? I mean... If I am a bond holder and I don't tender, do I get my coupon and principal.
A question of procedure.
Ask Obummer and see what he says!
"If I am a bond holder and I don't tender, do I get my coupon and principal. "?
That is a good question. Consider though that the banks willingly taking a 50% haircut have now just set the new market value for the bonds you hold. No problem if you are a bank - just mark to model (holding to maturity and being made whole). Not so good if your portfolio has to mark-to-market.
Also, since the bank holders of the Greek bonds voluntarily took the haircut (so they can get cash infusions from the EFSF), the CDS covering those bonds have not been triggered. Truly buggered, those who are holding Greek bonds and not a European banking institution!
Pretty good joke.
So you think it's funny, eh? Why you little............
http://www.youtube.com/watch?v=ekxn5KLv9XQ&NR=1
joke?
smart... Inteligator
Hilarious - so who buys EFSF-CDS in such environments then?
nobody with two brain cells
BAN CDS (Again)
Oh right.. CDS are evil and banned. Dummy I am.. thanks for pointing that out. Now pass it to Merkozy :)
Oh, right, what a nonsense, MegaBanks work in your interest by improving on the economy with exciting financial innovations.
Your sarcasm is reaching for some target I simply don't see, explain, please...
meanwhile BAN CDS, not only naked CDS, just for starters...
Amen.
But who could survive the "true" rates of interest.
you mean the ones where I get a reasonable rate for the risk of lending my money?
I said it yesterday. No law will be followed civil, contractual or criminal. No national custom or sovreignity will be allowed to stand in the way of this ponzi the only trigger is hunger, trade and prepare accordingly.
+1000
smart move. get your wife back
exactly surveys4income
exactly Inteligator
Sorry.. well: They ban CDS (naked for now) - but "invent" EFSF-CDS at the same time. Wasnt clear or '</sarc>' clearly. *picking my nose*
So... Buy government debt and face a potential 50% capital loss WITHOUT the possibility of hedging against it. Government bond sell off imminent.
"Remember that insurance policy you bought? Well we are ruling that you are not allowed to collect on it. We pick the winners and losers any time we like because we are your government. Thanks for playing though. Tee hee."
Put these people in children's clothes and let them play board games with each other, they are a menace for the rest of us.
These spoiled brats just make the situation for Italy and Spain much worse. They are essentially legitimizing capital loss with no means of protection, and then they will turn around and whine when spreads begin to widen like crazy. Government bonds were considered a safe haven in times of uncertainty. This decision just makes them risk asset number one. Lets face it, you have to be an extremely crappy stock/commodity picker to suffer a 50% loss with no possibility of recovery. At this point bonds have almost the same risk as derivatives trading.
'They are essentially legitimizing capital loss with no means of protection, and then they will turn around and whine when spreads begin to widen like crazy.'
http://www.youtube.com/watch?v=l8jIIPocqUU
good idea... french door refrigerator
Of course it isn't a default. That would have been bad. Bad is not good. Only good can happen...and happen it has. Hopium is powerful stuff.
I am surprised they wer able to levitate at these levels with the EFSF woefully inadequate.
I drink your milkshake.
http://www.youtube.com/watch?v=5nQ9YQt7N8s
No refills.
Abiogenic government debt. It naturally refills the coffers......which explains that constant sucking sound.
http://en.wikipedia.org/wiki/Abiogenic_petroleum_origin
"the EFSF is still too small to restore investor confidence"
the blasted EFSF is just there so that the EUR can continue to be the second ugliest currency in the contest
if the structure of the EFSF is of ugliness, it's mainly because it's modeled after the MegaBanks and holds them a mirror...
Stabeeleetee!
And now you know: there is no SHTF insurance. That bet never pays out.
Oh, and those of you holding on to the CDSs as a proxy hedge to other debt, you're no longer hedged.
Not sure why the CDS market on sovereigns doesn't collapse on something like this.
It probably will.
No CDS default, sell bonds.
Refuse to support ALL GOVERNMENTS, sell bonds.
may be not so fast - for your own benefit. tw
Here is an idea: Buy a Greek Bond and don't volunteeer for the haircut. When Greece goes to default on your bond state that you're willing to let the EFSF buy it for full face value and not a penny less.
Somebody, somewhere has got to be working this angle. (Caveat: I don't really understand all the nuances of bond trading but this idea is the first thing that came to mind when I read the story.)
If greece and the banks quietly buy up the remaining bonds, or even the CDS, then they can default on the rest, no problem.
ridiculous. the size of Greek CDS is deminimus. This is all about the "linkages" between European banks and the connections thereof to their respective "leaders." This truly is "kick the can down the road" as it solves absolutely nothing...although it does appear to represent a direct transfer of wealth from Europe to New York...at least today. If I were a European i'd be buying gold...provided i had a job/money/whatever. That's just the generic take to me. I think an interesting sidebar is "why does Europe export gasoline to the United States?" That's always seemed odd given that gasoline is WAY more expensive over there than it is over here--and the USA certainly doesn't have a shortage.
So, in other words, they, the banks, the fed, the treasury, the IMF, and rest of the BIG SWINGING DICKS can do WHATEVER THE FUCK THEY WANT TO DO. And you and I can't do a fucking thing about it.
Surely you didnt just now figure that out?
It has never been any more blatent.
True. But look on the bright side. At least they can't shoot rubber bullets at your face through the internet...yet.
Ahhhh, the silver lining. Thanks!
You can buy gold.
True, and they can confiscate it in exchange for notes.
"And you and I can't do a fucking thing about it."
Yes we can. Do something about it, that is. Just say NO to purchasing government debt - of all flavors. No more sovereign bonds, no more munis, no more GSE or other agency debt either. Look carefully at all of your investment vehicles - if they use government debt as a form of offset against more volatile components of their portfolio, dump them now. Force the PD's and CB's to buy that stuff. In fact, with the IASD showing their true colors, you might even want to reconsider any bonds in your portfolio - especially if they need CDS to offset any part of their value. Once the bond market tanks and commercial paper is infected, then you will see more thought given to what these clowns have just done.
Interesting to see what happens to debtholders who refuse to participate.
I bet greece is willing to trigger small, selective defaults.
GM
Unbelievable, in a "of course they fucked more responsible banks" sort of way.
Yet more confirmation gold is the only true safe repository of value. Can't trust currencies, can't trust GAAP accounting by corporates, can't trust any banks (see Dexia), can't invest in bonds, and now you can't trust international contracts, i.e. your insurance is now totally worthless.
System is pure shit. So gold it is.
dead right when the rules are invented on the fly by the 1% no one gonna play any more... game over and stack your coins and bars.....
Occupy Gold and Silver Bitchez!
futures up 26 - hope they hold till the open, I think moments like this define sell the news
I am boggled that the 'free market' no longer counts in any manner - those who have CDS on Italy or Spanish or Portuguese debt must wonder what's the point. Any and all hedging has become moot.
Anyhow, another fun Marc Faber interview yesterday on financial entertainment TV - he has a lot zingers in this one along with the normal fare about eventual war, and confiscation of assets down the road by desperate govts.
http://www.fundmymutualfund.com/2011/10/video-marc-faber-back-to-his-normal.html
That's what you get when communists run governments. Oh that's a little harsh. I mean socialists.
I disagree, this kind of interventions are more properly fascist, European Style
Mussolini wrote a few interesting articles about how and when the gov is supposed to step into the economy, bash a few heads and get all interests in line again... (I'm not giving kudos)
in the Anglophone countries you are more used to a different style of fascism, the "neo-liberal style", for a better word, where companies are never, ever, rebuked...
Socialisim leads to Communism, dont be too hard on yourself!
So insurance is worthless. What to do....
Do not lend.100% safety.
That depends on the meaning of what "Is" is. Is is is or is is not is?. That needs to be fully defined. Let's ask ISDA to elaborate , oh, wait a minute, they have already given their opinion?
50% "Haircut" Is Not A Credit Event.Is is not is. Is isn't.
Carl Weinberg on Bloomberg Radio just now
http://www.bloomberg.com/radio/
All this is going to do is bring inflows into the CDS market to a SCREECHING HALT! And by the way, the ISDA will probably determine that the buyers of the CDS's have to continue to pay per the original contracts requirements. Wow.
Credit Default Swaps on sovereigns are totally worthless now. The fact that ISDA does not see a 50% loss as a credit event is very telling. No amount of spin can now put this one back in the bottle. If you have sovereign debt and think you are hedged guess what you are no longer.
so as a result all inflows of money into backing govt. debt end, today.
Somewhere, some rather unpleasant drug Lords are on the Phone with a clear message.....
"I want my Fucking money back With Interest you Sons of Goth bitches. I stump Up, You banked it and Now....
See you in my court you Mother Fuckers- Nobody screws with Us
Someones getting a Columbian Necktie for Christmas - blood red to match the season you limp wristed Fairy Fuckers"
+1 for avatar
AIG should get back into the business!
What happens if someone doesn't volunteer?
The sovereigns get preferential treatment, they get to make the rules up as the game progresses
I hope I don't voluntarily have a crash on my drive to work. State Farm wouldn't have to pay if I intentionally T-bone another vehicle.
Basically insurance business par excellence! You have to pay premium, and when it comes to getting something, sorry.
Just transfer this concept ot high-water insurance.
"My home just got flooded. Can I please make a claim?"
"Technically it was not a flood, as you voltarily accepted the water into your house by leaving the door open."
I wonder who was selling all those CDS?
One huge thing lost in all this is Germany got there way. No money printing. No additional commitments. No bank recaps outside their borders. Everyone gets re-elected. This whole thing just feels like a set-up to give Germany the necessary time to move to the Dmark. No sane person believes "all is fixed." Yet, sure...the can has been kicked:
Now it is literally a race for the fade to discover who is first to realize that as Zero Hedge and now RBS chimes in, "the EFSF is still too small to restore investor confidence."
The markets have proved they don't need reality, they just need hope and this plan gives it for awhile, no? The thing is while true that the plan is not nearly big enough (see Gold and Silver trading in Asia markets), no debt exchange even takes place until the end of January. Therefore, if no banks have any epic fails before then, this may just push out the reality of this "kick the can" by another 3/4 months or longer. Unless current bond holders get nervous and start to sell because it's almost impossible to get hedge exposure now, likely not much happens in EU markets until next year.
What to make of Sarkozy etc. going to China to speak to the President? Is there something up their sleeves? Like help with bank recaps so look through to France's credit doesn't take it on the chin?
Spot on! Merkel 5 - Sarkozy 1 in terms all Europeans can understand.
I'm sure she wanted to kill the CDS market which she sees as supporting risk taking behaviour in banks that ultimately hurts the rich countries that have to bail them out.
She got the haircut she was looking for months ago when Sarkozy's bank buddies got her to back down and she still hasn't agreed to any further German EFSF contributions (for which she now needs Parliamentary approval) or big-scale printing (which would involve breaching EU law).