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Here Is Who Has Been Selling European CDS
While it hardly comes as a surprise, Bloomberg last night reported that Italian banks are the culprits. The Top 5 Italian banks (which comprise 90% of the country's derivatives market) increased their net sold protection by an amazing 41% to the end of June, now standing at $24bn. Of course, there is no evidence of them selling protection on one another in a quid-pro-quo sense (a la Greece), but it seems the creation of carry out of thin air remains alive and well and given that every credit in the world is significantly wider no than it was on average through the first half of the year, we hesitate to guess at the MtM losses their trading desks are sitting on. What is even more incredible, and a topic we have covered vociferously, is the 13% rise in notional derivative amounts. We know full well, from every liquidity indicator, that USD funding is hard to come by for European banks which just makes us wonder, given the USD-denomination of European Sovereign CDS, how much easier it is to sell protection and gather USD cashflows, than to swap your EUR or stigmatize yourself with the ECB or Fed swap lines?
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Why not sell sovereign CDs on your own country. If you win, you win and if you lose you are screwed anyways
Yep, also all the shitty creditors want to buy protection on themselves to get a windfall when they default.
Right, so net exposure is zero, all is well, nothing could go wrong.
By the way, I'm selling $1 million dollar life insurance coverage for $5 a week. I mean, I don't have a $1 million to pay out, but we can pretend like I do, ok?
Just don't die.
Just when you think it can't get any more absurd. Nice analogy, Redpill, you nailed it.
-- Ben S. Bernanke (paraphrased); from Esoteric & Entirely Lunatic Rantings & Discourse on Modern Money Mechanics from the Mind of The Beard, Volume II
why don't countries just borrow money like crazy and then buy CDS on themselves and then default?
Hell, they can get coverage and just default selectively...it'd be like shooting turtles with one of their feet nailed to the ground
The perverse incentives just keep getting more perverted.
Well, if the rumours are true, this is what Greece did. Buy protection from stupid German and Italian insurance companies... So you wonder why they were so insistent that a restructuring wouldn't trigger CDS?
It all works marvelously until there's a claim, which is an itty bitty oversight on someone's part I'd say.
I thought it was pretty obvious why they were so insistent. CDS is the time bomb that we all know is ticking but no one wants to acknowledge.
The real beauty of CDSs is that there are two ways to win, and win big ©.
The first is as you suggest.
The second is to match your sovereign coupon with more than an equivalent amount of CDS writing. Collect the premiums. Use them to pay off the coupon on the debt you issue, which means you never have a "default event".
I'm sure there are Bavarian Landesbanks who would be years catching on to the scam. In any event, this is hardly more foolish than an EFSF to bail out the PIIGS funded partly by the PIIGS themselves or an ECB than guarantees the debt of its members---letting them fund more cheaply---via a fund made up of contributions from EU members, and then "leveraged".
Insurance companies might get a little suspicious if you try to buy life insurance on your neighbor. But who is the arbiter when CDS are sold?
Hank Pauson, Timmay & The Bernank.
It worked wonderfully for Goldy & JP Morgue when they took out stacked death insurance on AIG, Lehman & Bear Stearns and then put a bullet in their heads.
i like j p morgue.
how about ghouldman sachs?
they died long ago, but nobody cares, they just keep on paying the $5.
hey, if regulation ever bothers you, I sell you a $2 re-insurance to take the potential liabilities off your balance sheet.
I wouldn't worry about it. If someone dies, you just say it was a non-event.
BTW, death is transitory.
And "nobody" could have seen it coming.
Problem diffusion. Credit Entropy.
... or discuss the definition of death. That should work out, as long as you (the issuer) claims you have seen the person well and alive on the other side.
I like it. I might buy so long as you post pictures of my wife being shocked I left her nothing!
It's 'life' insurance... Just void when they die.
This situation is similar to an old horror movie where a demented son kept his dead mother in her living room chair for years and refused to accept her demise. In this case if anyone finds the body it would trigger trillions in derivatives so nobody goes in the house.
That's the dirty secret of this entire derivitive mess. Sure you can go long the CDS's, but good luck getting paid by your counterparty when a credit event happens. Especially when it is the very counterparty that is defaulting. Flat broke is flat broke. Of coarse these rules don't apply to Vampire Squid, where upon the taxpayers will cover it at 100 cents on the dollar thanks to Timmay. Everyone else who thought they were hedged, guess what, go to the end of the line with all the other screwed creditors and suck some wind.
Just don't die?
Post-VietNam conflict, some of "the very best" life insurance co.s lobbied the Pentagon [by covertly setting-up the very survivor groups they encouraged to do the lobbying] to declare all Missing-In-Action all personnel who could not be proven to have been killed...i.e., any possible doubt meant MIA, not KIA.
The result? The families had to continue paying the insurance premiums, familyon and on, until courts or Pentagon declared death by old age. The families paid for many years.
(Bank) corporate and state fascism have converged.
Folks have found ways to deal with the fascism issue in the past.
http://www.flickr.com/photos/mark-trickett/2303350647/
Did not work out so well with 'Voluntary Greek' situation.
So they are going "short CDSs" ?!? Going longer more of their own debt? Who are the counter-parties and what are they thinking about the counter-party risk from they party is selling them.
Do you think that the FED will come in and bail out the counter-parties like they did for GS during the AIG wash-out. just saying......
CDS Market is non sense as u will never obtain the premia...as CREDIT EVENT NEVER HAPPENS ....
Just a waste of time
But ISDA regulators still there with their job...F:UK THEM
GREECE , PORTUGAL; SPAIN; ITALY, ALL ARE CREDIT EVENT , EVERY SINGLE COUNTRY
Credit events happen regularly just fine in the corporate space. Due to the intricacies of sovereign nations and their CBs meddling in financial affairs, its not as straightforward, even though sov CDS have been 'hit' before.
'Credit events happen regularly just fine in the corporate space.'
Yep. See EFSF setting up 'voluntary' partial default as example. ISDA debating the semantics of default. Someone call a semiotician!
How is the EFSF in the corporate space? You're totally missing ZP's point. You never see these games on a corporate name.
These banks are strategically selling CDS on the holdings of gov securities because it locks their treasury/ECB into another bailout.
The only way to fix this moral hazard is nationalization after liabilities are settled in bankruptcy.
So perfect. All is proceeding according to plan then.
Appreciate that you pointed it out.
What I don't get, the situation of sovereign debt was never really clarified and is IMO a total mess. Theoretically sovereigns cannot default and banks argue exactly this way. If so, how do you argue different risk premia. And how do you handle the semi-sovereign situation in the EUR zone? Any separate CDS issuance on EUR semi-sovereigns should have alarmed governments from the beginning, as they can be used for something like a political arbitrage game. Markets just identify arbitrage opportunities very quickly. Just having ISDA not declare a default won't do, as the gaps in the markets only widen and with an unclarified situation very rapidly lead to claims that have pretty extinctive power.
Not paying these claims will dry sovereign credit markets immediately, serving them will require sovereign states to backstop their financial systems with amounts that entirely kill their solvency. So, its either total stupidity not to clarify the situation at one point or a calculated game leading to insolvency one or the other way.
CDS are designed by dealers for dealers doing warehousing and flow business. There is a small chunk of business done by some others that are taking risk exposures. You are looking at this from the latter perspective. Dealers taking the former view have a complicated web of short/long exposures that is altered every day.
IMHO, most EU dealers are so dependent on ECB and subsidies to stay viable that they didn't complain when the idiot bureaucrats interfere with determination. Since dealers are such a big piece of the market, the rest don't really have a say. The idiot bureaucrats are so stupid that they can't even see that banks can game them by increasing exposures that necessitate even more subsidies. Government intervention and all "regulators" are useless excpet to put taxpayers on the hook.
I get your point, but that's only what I assume. In abstract terms, if there are no more asset holders to finance your debt, you virtualize it by allowing hedging and leveraging of debt issuance only to be repaid (backstopped) by the taxpayer in the future.
So what is constitutionally illegal to just spend witout actually available financing has become legal through regulation and financial engineering that is neither understood by the general public nor by the judicial power,
As stated below, everyone gets what he/she wants, politics get their spending and bankers their fees and the sheeple their burden.
I would say in abstract terms that the point is to make your inventory less risky so that your capital requirements are lower. CDS allow you to gear down risk because you can pass the credit risk to someone else. Again, from the flow/bank perspective. They are really not so revolutionary as some people think. It is just an option, and dealers are the bookies that print risk-neutral "odds" that even out the money on both sides of the trade so they can live off the skim.
State intervention is what creates the problems you correctly identify because they create incentives for people to exploit their stupid decisions. This is most obvious in Europe, the guys running that show are absolutely clueless as to the issues and don't have the energy and intelligence to figure it out. They accept at face value what a bank tells them is the right course of action, or make conflicted, irrational emotional decisions to appease voters for a short period of time. The people that could actually offer the painful honest solutions are blamed for all the problems by these hollow stuffed incompentent men, and voters never stop trusting these lying scum.
especially when the risk makers as well as the insurers of that risk have
bought the government who will force the innocent taxpayers to pay them
both when they both default on their bogus scheme.
the masses are still ignorant and asleep.
State intervention creates problem, LOL, not cheating lying fucks. Aren't you person who tells us taxpayer has no choice but to bail out these corrupt banks that gaming system right now. We must save them to save ourselves. Yeah right.
We don't have to bail you out. And soon we won't.
Another commenter was right. Leave the brain work to others.
LOL, you show yourself. This is your quote:
"State intervention is what creates the problems you correctly identify because they create incentives for people to exploit their stupid decisions."
Right, it's the state, not the corrupt bankers where I'm guessing you belong.
Also this from other day, you said, "I think the downside to allowing massive default is worse than the downside of trying to inflate our way out of the problem."
You care more of your "paper" than our country imo
Or, as I was made aware of by the head of the German economic advisory board, who is buying CDS on the US. Well, in real life, that's BS, there will never be a US credit event declared. The entire meaning of sovereign CDS is leveraging up the balance sheet. If a CDS protects your exposure and eliminates your risk, you can enter more risk and hedge itm enter more risk... and achieve a 50x leverage... without any risk. Yeah right.
As has been the default definition, the balance sheet risk regulation is a joke, much appreciated by the debt issuing sovereigns. Hey, need more debt... no, too much risk on the balance sheet, well then secure risk and take up more.
It's politics demanding debt and providing a BS regulation and bankers providing financing and taking provisions on the 50x leverage. Isn't that a win-win-situation?
"The entire meaning of sovereign CDS is leveraging up the balance sheet"
+1000
The Event is irrelevant.
Zeropower,
Im trying to be ironic about " SOVEREIGN EUROPEAN SINGLE COUNTRY CREDIT EVENT"- example Greece, Ireland or Portugal
As GeneMarchBanks says..its all about SEMANTIC/WORD/LEGAL RISK....
= BIGGEST LEGAL FARCE MARKET EVER DONE
=GREECE HAIRCUTS = CREDIT EVENT PERIOD, GAME SET AND MATCH,
Damn you to hell Bernanke!!!
-John
http://johnu78.blogspot.com/2011/12/occupy-protests-spread-to-1500-cities.html
Technically speaking you can also create a self-fulfulling event which ensures the sovereign loses but you (bankster) wins - great point oogs66 - and if you buy into the EuroBond camp all the better because the parasite banks accelerate the loss of sovereignty by consuming the host country in an act of treason which is funded/supported by the host...
This is so funny, truly funny. Now we know the whole system is screwed, they might as well default now than later.
ASEAN BANKS DENIES FUNDING TO FRENCH BANKS remember.....(socgen,groupama,creditagricole,bnp)....
French PM says will do whatever it takes to keep AAA rating
Soooo he is going to sell his soles to the devil and ask the Martians for their initial promised tranche of funding?
Tell that to PARMA ASSET MANAGEMENT
Prada?
If that's what it will take... they will have to go....
Yes, even if it takes Sarkozy to wear Prada.
Everything, that is, except cutting spending or increasing taxes.
how obvious and shamelessly they show the public who their masters are...
always comes back to US money markets
this dovetails nicely with Ratigan's Greedy Bastards
http://www.dylanratigan.com/2011/12/06/video-why-greedy-bastards-love-swaps-with-bill-fleckenstein-and-dan-gross/
A little stigma never hurt anyone.
Debt = Assets, Assets = Debts.
'MtM'
What's that?
Mark to Market (unrealized profits/losses from valuing your instruments at current market levels)
Aren't we all so accommodating here at ZH.
Thank you. I was relying on my reputation, my mistake. I'll use sarc/ or whatever you people use from now on...
I like :-/
or :-7
A word that works in more than one context, here.
Mark to Market
ex-anti/post anti, loop-de-loop
It's like Mark-to-Unicorn, but totally not as much fun.
cds : financial america's crown jewel, kohinoor.
Bring back the good old days of banks and countries actually defaulting and going bankrupt. Then I will buy CDSs.
Aaahhh the Good Ol' Days
I remember them.. when Europe had 26 Central Banks and America had 1
..then it all went truly fuking pear-shaped and shock-horror now all of Europe and America shares just 1... The Fed
was i asleep when this monumental policy was voted/slipped through???
any chance a European gets to vote on this democratically? ..or is this just another unelected fascist boil of puss on the nose of 'democracy'
The Top 5 Italian banks (which comprise 90% of the country's derivatives market) increased their net sold protection by an amazing 41% to the end of June, now standing at $24bn.
It's almost like they are the benficiaries of asymetric information (**cough-SuperMario**) as to the probability of any particular hard defualt and/or what kinds of related events will likely be deemed "voluntary" or not.
Now, what names are they writing contracts on?
who here has been selling?
anyone who wants FREE! MONEY!!
THEY CAN'T LOSE! GUARANTEED!
Now let's just wait for things to come now...
Who is buying the crap.
easier question in the finance, banking and Public sector world is to ask who hasn't been buying crap?!!
You can probably count the non-goons on the fingers of one hand!
AIG
AIG
Who the fuck would want Italian banks as counterparties???
Good point, who?
Goldman? Would make sense in a deal with fellow Monti
Wasn't this already answered here?
Blackrock, that's who......
Re: "Who the fuck would want Italian banks as counterparties???"
Drago and Bernank have bough protection from Italian banks.
Banks are just dumping grounds for toxic, to-be-papered-over debt. The notion of counterparty is dead.
Dexia?
Why not? It´s proven beoynd any doubt that European banks will not go belly up. Just look at the pinch Credit Agricole (probably) was in just last week. The result? Swap lines for everybody! Let´s have us a rally!
We laughed at 300% Greek one year bonds. We´ll see who´s laughing a year from now when the squid cashed those in.
The only ones worried about European sovereigns are people who can´t do shit about the situation. Those who can are sacrificing everything and everybody to kick the can. And there is prolly a lot more road to kick the can down...
Sounds to me like they're lifting themselves up (or hanging themselves?) by their own bootstraps...
it's insurance to die for
All's well that ends well..
...cough ...splutter ...choke
should be changed to squid-pro-squid.
Squid-pro-quo?
short and shoter time for mkts to readjust to the bs multi repeated news stories
Ponzi reaching its pinnacle.
Goldman recommends Italian bonds, in German
http://www.ftd.de/finanzen/maerkte/anleihen-devisen/:trotz-krise-goldman...
OMG
So Ben and Timmy are supplying dollar liquidity swaps for European quid-pro-quo counter-party gambling swaps?
Just when you think it couldn't get any more perverse...
Looks like the lows might be in on commodity plays.
Nice reversal on most of them.
so have you bought some Robby?
or did you sell your Gold miner during the recent drop like a good little scared witless sheepie?
nothing worse than bootleg european cds. picked up a few on the corner of canal street. terrible quality. and yet, people keep buying them.....go figure.............
picked up a few on the corner of canal street.
Sure those weren't bootleg, european STDs?
MtM = mouth-to-mouth
When they start AtM, leave the market in a hurry.
I wish I could play poker on unlimited credit; I wouldn't have a McJob that pays me shit and probably would have a WSOP bracelet by now.
http://www.dylanratigan.com/2011/12/06/video-why-greedy-bastards-love-swaps-with-bill-fleckenstein-and-dan-gross/
The Bernank is replacing that black guy as Allstate's spokesman who asks whether you are in "good hands."
I am starting think the market will never crash,the fed wont let it happen.
If the fed spent 7.7 trillion back in 2009,they wont let it go in a election cycle.
What say you all?
Books will be closed soon. No window dressing any longer. I would be short, apart from summit day.
So write puts on 1000x the unencumbered cash in your acct and declare yourself a bank. The Fed will have your back.
Listen, my name is Mark T. Market and I do not approve all this talk and I am not a candidate and these aren't my commercials and get off my lawn.
I'd do the same, gimme a break...
If Italy defaults, they're bust anyway. This way, they'll just be... buster? Or you think euro disintegrates and the banks survive?
WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke on Tuesday pushed back against reports that the Fed had lent banks $7.77 trillion or more during the financial crisis, saying they contained "egregious errors and mistakes."
Bloomberg Markets Magazine last month published an article called "Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress." The article was widely referenced by other news organizations, including the New York Times.
The Bloomberg article said the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system when all guarantees and lending limits were added up.
While Bernanke did not mention Bloomberg or any other news organization by name, he said in a letter to lawmakers that the figure and other estimates of larger total amounts of lending, were "wildly inaccurate." On any given day, Fed credit from its emergency liquidity programs was never more than about $1.5 trillion, he said.
"These articles ... have contained a variety of egregious errors and mistakes," Bernanke told the chairmen of the U.S. Senate Banking and House of Representatives Financial Services committees.
The Fed chair also disputed that the loans were secret or that lawmakers were kept in the dark, saying the central bank announced its emergency programs and reported information about them to Congress and the public.
"Congress was well informed of the volume of borrowing by large banks," he said.
Bernanke further took issue with the assertion that banks reaped an estimated $13 billion of income by taking advantage of the Fed's below-market rates. Firms availing themselves of credit from the central bank's programs had to pay penalty rates for emergency loans, he said.
"The rates that the Federal Reserve charged on its lending program did not provide a subsidy to borrowers," the Fed chair said.
Bloomberg did not respond to a request for comment.
The central bank in March was ordered by a court to divulge details on lending from its regular discount window during the crisis when it lost a legal battle initiated by Bloomberg LP, the parent of Bloomberg News, and News Corp's Fox News Network.
The Fed had strenuously resisted providing information about discount window borrowers, arguing that banks would be unwilling to use the lending facility if their actions risked becoming public out of fear they could be seen as weak.
When the data was released in March, it showed that banks from Europe had drawn tens of billions of dollars from the U.S. central bank during the crisis.
In addition, the Fed was instructed by the new Dodd-Frank financial reform law to divulge borrowing from other lending programs it created to stabilize financial markets during the economic meltdown. A December 2010 data release revealed that major banks had been big beneficiaries from some of those programs.
(Reporting By Mark Felsenthal; Editing by James Dalgleish)
@yahoofinance on Twitter, become a fan on Facebook
lol @ the European parlament.
http://www.dumpert.nl/mediabase/1865441/4f6b186e/dumpert_eutelevee_verhofstadt_op_tilt.html
The trap is set..... it too late for these clowns...
Tomorrow's FT rumor today:
ECB to Fund EFSF by Selling CDSs on Itself
Euro, Markets Soar on News. Says Blackrock's Bob Doll, "finally the EU is taking some real action". "This is a game changer", adds TV market pundit Jim Cramer. Abby Joseph Cohen adds her ubiquitous, "we see the S&P as 15% undervalued".
Ur hired.
When I sell a "naked" put, it isn't really naked, as I am required to put up enough cash as collateral to cover the purchase of the underlying shares. Naive question: why aren't banks required to do the same? Oh that's right, they're safe because they're regulated.
:-)
So people still buy CDS's...???
I hear they hand out haircut coupons with CDS's.
$107 trillion increase in total notional derivatives in the first 6 months of 2011? $24 trillion CDS contracts bought by Italian banks?
That is so 15 seconds ago.
Remember, reporting OTC activity to BIS is voluntary.
Derivatives do nothing useful. The following statement, "one of the key contributors to global growth and prosperity in the past 10 years was an increase in total derivatives from just under $100 trillion to $708 trillion in exactly one decade" is 100% false. They helped a very small segment of the population and those people did not spread the love, they stole our children's future using derivatives. The pyramid scheme is almost over. Let the mother of all margin calls commence. I want them all to die. For the sake of the world, the pyramid must collapse.
sounds like a giant game of squid-chicken: increase systemic dependence and risk and ensure that the ecb has to backstop the entire eurozone.