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?