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FYI ISDA GGB CDS CYA
For those who have not been following, ISDA has released their updated Q&A on whether a 'voluntary' gun-to-my-head haircut of 50% is not a credit event. Nothing really new here but it clarifies much of what we have said with regard to their 'determinations' process and how they will defend their decision against a lot of very upset basis traders (who by the way were most supportive of both new issues and secondaries in the European sovereign market - well until now that is).
Update on Greek Q and a 27 10 11
and more detailed perspective from Peter Tchir of TF Market Advisors:
We have been saying and continue to say that being short sovereigns via CDS is a bad idea. The governments are trying to structure deals specifically to avoid triggering CDS. Banks that have been using CDS to hedge will want to reduce their CDS shorts - because the banks that are hedging do it for economic reasons, not just for regulatory capital reasons.
I don't see any way that this is a Credit Event. At this stage, the IIF still has to draft a proposal and sent it to its members who can accept or reject it. In the end it doesn't matter whether they are forced to agree to a restructuring or not. That isn't what is meant or picked up by "voluntary" in the ISDA definitions. The definition is meant to pick up the case where someone votes No to a change, but because enough other people vote in favor, that their bonds also get converted (say a 95% vote is required, and 96% is reached, then the bond converts, and the voluntary is meant to protect the 4% who didn't vote in favor but are forced to convert anyways). We keep looking at the definition and don't think there is a strong case to say this was a Credit Event.
You also have the issue that under SNAC trades, you agree to be bound by the Credit Event Determination Committee. So not only would you need to fight whether or not the Committee was correct, you would probably have to win an argument that you weren't bound to their decision even if they were incorrect. In the old days, you would claim a Credit Event occurred, and send your Credit Event Notices to whoever had sold you protection. If they disagreed, then you could sue them. I am told the fact that you have agreed to be bound by the decisions of the Credit Event Determination Committee makes it harder than ever to suit.
Obviously these things can be challenged (and someone may well challenge them), but I don't think it is a particularly strong case. In any event, doesn't seem like an exchange will occur before the Dec 20th contract rolls off.
At some point, someone might say something that could trigger a Repudiation/Moratorium extension. I think it would have to be someone from Greece, and they have been very careful about saying anything potentially negative. I'm not sure that Juncker would count as a "Governmental Authority" but some of his tough talk seemed to be getting dangerously close to language that could be construed as such, but all that would really do is extend the maturity on CDS contracts, it would not trigger payments which would still require a Failure to Pay.
Just to make it more interesting, the EFSF may be able to sell sovereign CDS. More pain for shorts, and if you think they manipulated the situation enough when it wasn't their money, wait until you see what governments do, when it is their own money at stake if there is a Credit Event.
I don't believe that this "solution" has done that much and too many people are looking at sovereign CDS as a sign. I think as the news is digested, real details come out, Sovereign CDS will continue to gap tighter, bonds of Germany and France will continue to be weak, Italian and Spanish bonds will give up some of their gains, and CDS in MAIN and XOVER and IG will drift wider in response to moves in bonds rather than moves in sovereign CDS.
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Ponzi continuum 101.
Maybe Europe will grant Madoff asylum as a political refugee, on basis that he was only doing God's work and shouldn't be locked up for doing what is business as usual by the goverments and accounting practices overseers.
So, since my neighbor willingly only let half his house burn down, my insurance won't pay?
This teaches traders for hedging in the completely discredited CDS market. The doomer CDS market has been incorrectly indicating BOA and Morgan Stanley defaults for some time now. So where are the defaults? I'm still waiting ...
If derivatives are so cool by them, why the need to shift their liabilities in that space into FDIC land?
Bears are gonna "clawback" your $1M bonus!
You've lost me here. If there's no chance that this is a credit event, then sovereign CDS are toilet paper and CDS market is officially dead. Why would anyone buy insurance that has proven to be completely worthless? Would seem to me the yields on PIIS bonds are going to blow out...
I have found that this answer fits with any question or frustration: Note, plug in any question or scenario...CDS, Wallstreet Bankers, OWS...it will work with any confusion or proposition regarding the Keynesian paradigm.
http://www.youtube.com/watch?v=MBeT4ptY9sY
So the PTB get the S&P up to 1270 and save the banks without QE3 by strongarming the necessary officials. Can't they just carry this on forever? If they can do this, imagine what they could do to the price of silver? Oh, wait...
What part of 'if the big banks on The Committee got laid last night your CDS might be worth something' don't folks understand?
Just discount everything on Earth 50% and maybe it will make more sense. From a market as opposed to mafioso standpoint.
Bwahahahahaha
+1 for tits.
one small step for europe one giant step for zero hedge
Caveat Emptor
safe, efficient markets. really? got to be a joke
There are no markets, there are only interventions.
If you believe what the Euro PTB just did will work, I've got a bridge to sell you.
If the haircuts are voluntary, I would rescind my agreement if I was a Greek pension.
" I would rescind my agreement if I was a Greek pension"
Exactly, you are one smart monkey.
Next up Japanese crisis?
shorts are getting killed today
tomorrow may not be many of us left.
That is the plan. Now that CDS have become a place for money to die, look for some massive sovereign unwinds and contract lawyers to spring into action.
Yup, so goodbye short-covering rallies and hello no-bid flash crash. I'm glad our distinguished leaders are so smurt.
They sure as hell must be running out of Charlie Brown shorts to kornhole to raise world markets. At some point here, theyll all give up shorting and THEN what?
Holy Shit...Bob Pisani just had a coming to Jesus and is spewing out common sense and truth as fast as he can.
Never thought I'd hear it.
Hope he doesn't have an aneurysm. But its funny that once his friends have their security blanket taken away from them (a Linus moment) they completely lose it.
As I wrote further down, this is the end of derivatives as we know them and the beginning of "The Great Interest Rate Reloading" where interest rates rise to compensate for default and other such risks, which risk premiums where shifted to these derivates contracts, but now MUST be reloaded onto the interest rate required as its got to be paid for by someone, and now (again) it will be the borrower directly.
Boy, this is going to be fun and aweful to watch.
A disgusting day for all professionals working in the credit and sov bond space.
Hey look mr. Risk dept, no more need for any hedges, SINCE THEY WONT FUCKING PAY OUT.
So then just sell the underlying. #NotThatHard
Typical insurance company 'that don't count' weaseling:
Your house was destroyed by an Act of God? That don't count!
Your house was ruined by a flood? That don't count!
You had a building code violation when your house burned down? That don't count!
So why the f*ck did I buy insurance?
But CDS has never been insurance. If it was it would be highly regulated and issuers would have to hold reserves against it. This was always a toxic security.
I have no sympathy for people whining "I bought Greek debt even though I knew they were bankrupt because I also bought CDS so I could make a couple extra percent..."
Bring on the junks.
Why am I thinking that the hedgies probably bought Greek debt and SOLD the CDS...
LMAO “… a 'voluntary' gun-to-my-head haircut of 50% is not a credit event.”
If it’s not a credit event it’s definitely a scalping event.
It was pretty much a dead lock that they would cobble together a solution.
What matters is not whether it is a credible plan or not.
The only thing that matters is how the market reacts to it.
You could see this coming a mile away, since we had 41 consecutive days of -1000 TICK readings, with many over -1250 and two over -1400.
Clean breakaway gap right over the 200-day on the NY Composite.
http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosetti...
no robo, in your case, you saw that it came a mile away.
Robo saw it coming from his position of rearview mirror trading, well after the fact as usual.
At least the market stocks like exxon, boeing, intel up gmcr,nflx,open, down over the last 3 weeks....
How can you still afford electricity and internet access?
Hey Robo whilst you were getting serviced last night many of your detractors also appear to have been getting serviced (though in the latter case straight up the ass with a wire brush) I wonder how many of them are able to sit at their computer long enough to junk you.
I would like the City Shrimp, preeze.
ding nei gaw fye
Hey, you're almost whole on Netflix now, huh?
Seriously, I've been in the Securities industry for 24 years, and I've never seen anyone as clueless as you are.
Is this your 8th grade Civics assignment? Who the fuck watches the TICK anymore?
Your conclusions are- without fail- meaningless and obtuse. One can literally take your observations and apply them to any market event, and come to a conclusion that prices always will rise the next day.
Please stop citing technical trading- technical trading is, by definition, agnostic, and you're clearly a perma-bull, which renders the charts meaningless for you.
Charts don't make you sound intelligent, and don't reinforce your undying belief that all stocks must go straight up every day.
And Netflix will never see $100 again in our lifetimes- deal with it.
How about if it's an "Incredible Plan"? Does that count?
http://www.youtube.com/watch?v=iPDJF2lYE4w&feature=player_detailpage
Pretty slick, if the 15 members if ISDA don't take haircuts, then its NOT a credit event. Screw Barclays.
ISDA has proven themselves to be nothing short of a bunch of modern day thieves; on a par with the scumbags who populate the CME in Chicago.
If I was a CDS trader, I'd be looking for a new market to trade. How many times do you need to be bent over the proverbial fencepost and fucked with no kisses, and be told wasn't that great?
Despite the bullshit of no credit event, everybody knows the truth. Remember, if their lips move they are lying.
"...If I was a CDS trader, I'd be looking for a new market to trade..."
You mean find another job.
I'd be getting a lawyer.
somebody please crush the International Socialist Derivatives Association with a massive class action lawsuit!!!!! please!!!!!
While I agree with your call to action, but did you see the names behind ISDA? You'd have to be God himself to stand a chance.
"The Restructuring Credit Event is triggered if one of a defined list of events occurs, withrespect to a debt obligation such as a bond or a loan, as a result of a decline increditworthiness or financial condition of the reference entity. The listed events are: reductionin the rate of interest or amount of principal payable (which would
include a “haircut”);
deferral of payment of interest or principal (which would include an extension of maturity of
an outstanding obligation); subordination of the obligation; and change in the currency of payment to a currency that is not legal tender in a G7 country or a AAA-rated OECD country. The decline in creditworthiness or financial condition requirement is intended to filter out restructurings that occur as a result of improved financial condition."
..................................................
SO what makes this a situation where a CREDIT EVENT is NOT TRIGGERED?
It's a voluntary re-fi agreement. <sarc>
Well...it's just half your debt. I imagine if it was....50.01, WELL...now THAT MISTER IS A CREDIT EVENT.
Making it obvious that they and any other regulators will always change the rules so banks never lose. They are obviously owned just as much as the CFTC is owned by bankers.
Only thing to do is exit the game and let them fuck themselves.
So, why are CDS spreads tighter today?
I get junked for asking a question?
Junk button is pretty much meaningless.
This may not have done much but we now live in a world where that doens't really matter. What was done is that these governments have shown the world they have absolute disregard for law and practice and if they have to declare war on Cyprus so that they get emergency powers to "save the euro" they will do so....
no wonder jim rogers said to get out of finance and into farming.....
At some point here, everyone will be killed, the longs the shorts, all of em.
I think you're quoting JP Morgan himself on that one. "Gambling, houses of ill-repute, drink. what else do these Americans do?"
Hearing Graham Summer's crash indicator just triggered again, and again, and again...zzzz...very well correlated with higher highs on the SPX, Copper and Silver
From page 2 of 4:
If a creditor is hedging using CDS, and declines to participate in a voluntary restructuring, the the creditor would still hold its original debt claim and its CDS hedge which would continue to protect against future non-payment or a mandatory restructuring.
The ISDA document contrasts a 'voluntary debt exchange' (no Credit Event) and a 'restructuring credit event.' Then they imply that the Greek deal is a 'voluntary restructuring' (yet a third term).
What a mess! As soon as ISDA makes its determination, why would CDS holders not sue in U.S. district court to clarify this tangled mass of weasel-wording??
ISDA after market close : Ahem : we've reviewed this, and now think ...
Could this mean potentialy partial settlement of the CDS?
Anyone trading in future CDS contracts must be out of their mind.
bonga bonga mother fucker....
Kneejerk reaction over soon. Almost time to load the shorts up to infinity.
So, let me get this right. Debt is unlimited and it can never default. Cool. Unlimited wealth for all.
Double post, dammit.
good one though. that's why your system of public finance was created by New Englanders and not New Yorkers. Beware "the Bond"
http://www.youtube.com/watch?feature=player_detailpage&v=ye8KvYKn9-0
No biggie for the CDS holders- they give up the ship for now on this deal, play ball, and hold out until the rest of the Euro paper falls......
LOL, OMG, WTF?
I wonder what other contracts will be declared null and void? Mortgages? Student Loans?
LOL! Those are for the heathen riff-raff, silly. Still gotta pay on 'em.
Modified^2 lol.
This is some foocked up $hit. Sorry I have nothing constructive to say. This just makes me mad.
If this is not a credit event, why have the likes of moody's, s&p, credit susie, etc. capable of rating anything? Rating agencies are no longer needed when bankruptcy is not treated as a credit event.
DId anyone else notice that there supposedly only 3 billion in CDS's on greek debt out there???? HUH? I thought that there was at least as much insurance out there as DEBT? All of these bond holders have been uncovered? Someone please explain.....
Banks made a fortune selling structured notes to Greek pension funds (lots of bribes to trade union leaders, lots of money for Greek brokers). Reference credit Hellenic Republic, but it is a CDS based instrument. So, the desperate attempt to prevent credit event is linked to everyones desire to keep the bonds paying - a credit event could well mean almost 100% loss owing to structure of the note.
Here's one example, but the market was far bigger than just this €280mm deal...
http://www.nytimes.com/2007/06/14/business/worldbusiness/14iht-bonds.4.6...
I think you're all jumping the gun a bit. There's been no haircut - all we have is a press conference. No one has gone to the mat yet. No one has volunteered their bonds to be given new ones at 50% face value.
If you owned the bonds and you bought CDS's to insure your portfolio, would you turn in your bonds under a deal that does not trigger your own CDS protection? No, you'll wait. The CDS sellers will be bailed out by taxpayers, the CDS holders will be covered. That's what we learned 2008.
Yes, and how did that turn out for equities and PMs again?
My first thought was that if they don't honor CDS contracts for the very thing they are supose to protect against, wouldn't this lessen the demand for both the CDS and the bonds if you can't hedge?
The ISDA has to be one of the most blatantly obvious examples of corruption in the world at this moment. Thing is, they're damned and don't even know it. Protecting the BNP Paribas and Deutsche Banks of this world by refusing to call a credit event a credit event may well save those banks a mighty headache, but by doing so, a whole lot of hedges suddenly blow up as positions that depended on CDS triggering turn out to be not hedged at all. The subsequent cascading panic attack will, sure as the Pope's a paedophile, turn around to bite the ass of the very same banks that a corrupted ISDA thought it was protecting.
Best thing to do here is stop playing hide the bomb and just let it explode. Some survivors will remain. Let them salvage whatever is left and we can move on.
I can pretty much garran-damn-ty you that a ruling such as this will completely destroy the use of CDS *AND* sweep all risk premiums BACK into the interest rate required. (IE - interest rates will rise my friends) and all derivatives holders will be reviewing their contracts to see if their triggers reference ISDA as the ruling body for an event...because IF THEY FIND THAT, then they will terminate dealings in that garbage immediately (IE expect total derivatives markets to begin a grand bubble deflation collapse).