Derivatives: Darth Vader's Revenge Message Board

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Non-Tech : Derivatives: Darth Vader's Revenge

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From: Worswick	10/27/2011 2:55:29 PM
	2 Recommendations Read Replies (2) of 2794

tavakolistructuredfinance.com Janet Tavakoli Mike Sheddlock globaleconomicanalysis.blogspot.com Language Arbitrage: You’re Not a Sucker, You’re a Customer Banks that play this game call it “language arbitrage.” Anyone that bought sovereign credit protection on Greece after accepting ISDA “standard” documentation without modifying the language now finds that they are on the wrong side of an “arbitrage.” An arbitrage is a riskless money pump. In this case, it means that money has been pumped out of credit default protection buyers with no risk to their counterparties, the financial institutions that ostensibly sold them credit default protection on Greece. Derivatives King Always Wins Note how the "Derivatives King" JP Morgan wins on its contracts, even on both sides of essentially the same bet. By the way, I have a couple of questions: What the hell are banks doing in all these derivatives markets in the first place? Isn't it time banks act like banks instead of arbitrage hedge funds? Addendum: Reader Scott writes ... One look at the ISDA membership should disabuse anyone of the notion that this is some kind of neutral judge. The big banks that write most of the derivative contract also compose the group that defines a credit event. This is not much different than have a baseball pitcher call the balls and strikes. How this is legal is beyond me.

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