Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: pogohere who wrote (82271)	10/28/2011 4:06:22 PM
From: pogohere	1 Recommendation Read Replies (1) \| Respond to of 218538

“Standard” Credit Default Swaps on Greece Are a Sham and It’s Not a Surprise “Standard” Credit Default Swaps on Greece Are a Sham and It’s Not a Surprise At least it’s not a surprise to any financial professional that has paid attention to the false reassurances that the International Swaps and Derivatives Association, Inc. (ISDA) has given over the years to naïve participants in the credit derivatives market. “Customers” that accepted ISDA documentation when buying credit default protection on Greece are now discovering that ISDA defends the position that a 50% discount on Greek debt is “voluntary” and therefore not a credit event for credit default swap payment purposes according to its documents. This makes the ISDA “standard” credit default swap (CDS) ineffective as a hedge for the widened spreads (reduced price) of Greek debt, and it makes it ineffective as a protection against default using reasonable standards of impairment to define default. ISDA can defend ambiguous definitions so that payment on the credit default swap is virtually impossible. First Step in a CDS: Protect Yourself from the ISDA Cartel As previous sovereign problems have illustrated, the only way to buy protection is to rewrite the flawed ISDA “standard” document and agree to new more sensible terms, before concluding the initial trade. One has to first protect oneself from the ISDA cartel “standard” documentation before one can buy sovereign default protection, or any other protection for that matter. (more) docs.google.com see also: Dangers Lie Around Corner If Greek CDS Aren't Triggered By Katy Burne Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--While markets rallied Thursday on news of a deal to stem Europe's debt crisis, adverse consequences of the deal lurk in the background. Investors' focus has turned from the deal itself -- in which some private investors will take a voluntary 50% write-down on the notional amount of sovereign Greek bonds -- to the potential lack of payouts on insurance covering losses on sovereign debt and its impact on markets. The legal uncertainty over payouts on credit default swaps could obviate the value of sovereign CDS -- a $2.5 trillion market -- and endanger those firms that have been relying on the contracts to hedge declines in their European holdings. Banks that use credit-default swaps to hedge their government bond holdings may be forced to find other ways to lay off risk. It also helps explain why CDS tied to bank debt took a beating in recent months, as market participants sought proxy hedges in case their CDS didn't pay out and policymakers in Europe sought to ban "naked CDS," where firms own a CDS but have no bond exposure, and thus no insurable interest. There were reasons why European bank debt needed to be re-priced to reflect its greater risk, but the panic over CDS contributed significantly to the negative price action on banks, said Adam Fisher, chief investment officer at hedge fund Commonwealth Opportunity Master Fund Ltd, and a trader of sovereign CDS. "Officials inadvertently put bank debt in the line of fire," he said. "They screwed the CDS and people had to go and find something else, and when everyone did that at the same time, it crushed bank stocks." (more) Message 27731957