Jim Sinclair: The Impending Undeclared Default Of 5 Major US Banks

[pmbug]

The International Swaps and Derivatives Association (ISDA) will be responsible for a very important decision shortly. As Jim Sinclair stated during his interview with Ellis Martin, ISDA are "the people who determine if a credit event is a default or not. It is the singular, most important organization with more power than governments. It will determine whether 5 US banks will go insolvent tomorrow, as in this week. Five US Banks controlling over 97% of all credit default swaps." ISDA is the organization in charge of declaring a default, but they are made up of the membership banks who hold the credit default swaps! ...

After listening to the interview, I went back to SD archives. Let's not forget, the same organization which is "more powerful than governments" and in charge of declaring a default in Greece is the group appealing the Dodd-Frank Act's implementation of position limits. It should come at no surprise to SD reader's of what the intentions are of the members leading the direction of the ISDA.
...

More: http://silverdoctors.blogspot.com/2012/01/isda-is-behind-attempt-to-appeal.html

ISDA set up us the (CDS/derivative) bomb. :flail:

 

[swissaustrian]

ISDA already declared any Greek haircut "voluntary", i.e. no credit event.
Putting a gun at somebody's head in order to make him agree on something is textbook voluntarism
see here: http://www.zerohedge.com/news/farce-complete-isda-finds-50-haircut-not-credit-event

 

[KMS]

Why was he saying that the ISDA was 'deciding' this week? That ZeroHedge article is from October.

 

[pmbug]

The ZH article is referring to a previous bailout deal that fell through - never happened. Sinclair is talking about the most recent events. It's looking like Greece is going to partially default (force haircuts).

 

[DSAbug]

this is bad

 

[swissaustrian]

The ZH article is referring to a previous bailout deal that fell through - never happened. Sinclair is talking about the most recent events. It's looking like Greece is going to partially default (force haircuts).

Back in october, they were talking about 50% haircuts, now it's 60%...
ISDA will never declare any sovereign default a "credit event", because this would kill the CDS underwriters,i.e. the US tbtfb, just like AIG was killed in 08 when housing collapsed.

 

[pmbug]

The latest:

... From Reuters: "Greece's private sector creditors could take a loss of more than 70 percent in a planned debt swap, Finance Minister Evangelos Venizelos said on Tuesday. "There is a very serious discussion based on new facts. We are talking about a PSI much greater than the original," he told lawmakers, referring to private sector involvement in the deal. "We are talking about a haircut on the net present value exceeding 70 percent," he said. ...

http://www.zerohedge.com/news/greece-releases-new-proposal-even-greater-losses-creditors

 

[DSAbug]

I'm hearing 70+

 

[DoChenRollingBearing]

$500 more comes out of the ATM today...

 

[KMS]

Yeah, just like he said, they just keep writing it down more and more, the reported numbers anyway. Thanks for clarifying that the 50% never happened and JS is talking about very current events.

 

[swissaustrian]

Everything you need to know on US bank's CDS exposure to Greece:
http://www.businessweek.com/news/20...on-europe-debt-raises-risk-for-u-s-banks.html

The consequences of a Greek default as a credit event for CDS underwriters:
http://www.creditwritedowns.com/2011/06/greece-as-europes-lehman.html

Here are the largest Greek bondholders as of June 2011:

PS: Sorry for offering posts without detailed explanations, I'm a bit in a hurry these days :flail:

 

[swissaustrian]

Something very important:
The biggest holders of Greek CDS (i.e. insurances on a Greek default) are so called bona fide hedgers, the holders of bonds. They're not holding these CDS's naked, they're covering losses on bonds with them. This means:
If a credit event was aknowledged, this would mean that the CDS underwriters (i.e. US banks, some European tbtfb's) would have to pay the bona fide hedgers, too. Greek pension funds and banks (who are "hedged" with CDS on their bond holdings) would effectively be bailed out by foreign banks. This is clearly NOT in the interest of those who control ISDA. ISDA is dominated by Anglo-American banks...

 

[pmbug]

It appears that I was mistaken, the 50% haircut deal was actually the second bailout deal Greece negotiated. The recent wrangling is over a proposed 3rd bailout!

Here's the news report about the writedown deal falling through roughly a week ago:

http://www.zerohedge.com/news/greek-debt-deal-rejected-sp-begins-european-bank-downgrades

and more detail on the story here:

http://www.marketoracle.co.uk/Article32779.html

 

[DoChenRollingBearing]

@ swissaustrian

That was an excellent post (3:40 PM, table of European banks' exposure to Greece).

I wonder how important those exposures are for (relative to their capital):

BNP (France) 5.0
Dexia (Belgium / France) 3.5
Generali (Italy) 3.0

 

[DCFusor]

This is where things hit fans. Kyle B, in Come Undone, seemed to think that first deal that didn't fly was only going to write down private holders, not the ECB-Troika, and that it couldn't work in the sense that 100% of the private holders being completely written off wouldn't really help Greece much at all - they needed a real 100% write-down on all of it. He also mentioned that even with Greek yields at their current stratospheric levels, they were paying around 4% net interest on it all - due to having sold a lot of bonds earlier at lower rates and so on. You've gotta admire a guy who actually digs out all those numbers - because it makes the implications of what will happen when they have to roll all that old stuff over really obvious to everyone - most of whom had no clue as to the real situation we have here.

This is one place where you could really wish (but probably unreasonable to hope) for someone really disinterested to decide which CDS pay and which don't, in binding arbitration - you could spread out the damage wide enough (maybe) to perhaps not kill anyone unfairly, but get your ounce of flesh from as many as possible who really do deserve to have to donate it. Of course, this won't happen, but this IS one of those very rare times when intelligent intervention (by martians?) could actually help the total world situation.

Clearly, having no CDS pay off is unfair, even if whoever sold them has to give refunds for the purchase price - because one needs trust in the system that if you buy insurance, it will pay off in "the event". And in fact, that prior hint that CDS might not pay off had a negative effect on the problem - if I can't hedge my exposure, then I have to dump the exposure now - which is what happened and was part of the reason for the rates continuing to go up.

On the other hand - bankrupting almost everyone doesn't serve society all that well - though some certainly deserve it here - as Kyle mentioned, capitalism without bankruptcy is like Christianity without hell. It doesn't work either.

But I see this as an important cusp - a possible make or break for some important aspects of the system as a whole. If no one comes up with something perceived fair to all - we have problems other than Greece. Maybe something along the lines of paying only CDS to those holding the underlying instrument? Probably past my depth to suggest any real solution - but this is one of the few times any solution whatever can even be reasonably suggested.

 

[swissaustrian]

But I see this as an important cusp - a possible make or break for some important aspects of the system as a whole. If no one comes up with something perceived fair to all - we have problems other than Greece. Maybe something along the lines of paying only CDS to those holding the underlying instrument? Probably past my depth to suggest any real solution - but this is one of the few times any solution whatever can even be reasonably suggested.

This would be a great solution, but it would require to regulate the derivatives market worldwide. If one did this just in certain countries, banks would move their derivative businesses offshore and nothing would change. Right now, London is the biggest pile of :doodoo: . In 2008, it was AIG's London office which blew the whole company up.
I think the real in dept solution is re-establishing commodity backed money, so financial institutions can't lever themselves up to insane levels. The financial sector in relation to total GDP is dramatically oversized. We need deleveraging and a shrinking financial sector. I think that is what we're witnessing right now: Banks are laying off employees, sovereigns are getting haircuts, central banks are devalueing debt.

 

[ancona]

DCFusor Said: "
On the other hand - bankrupting almost everyone doesn't serve society all that well - though some certainly deserve it here - as Kyle mentioned, capitalism without bankruptcy is like Christianity without hell. It doesn't work either."

Ancona says:
I think a grand reset is in the cards irrespective of whether or nor anyone deserves it. The system has become so complicated as to be impossible to operate on a fair basis any more, and it is teetering on collapse as I peck at my keyboard. The Brotherhood of Darkness has fucked it up good this time, as they allowed banksters to go "all in" with CDS. What they didn't understand was and still is that if you allow these greedy bastards to sell one another insurance on the shit they are selling to one another, and allow them to insure government bonds, then allow those same people to form a group who decides whether an "event" was triggered to force a payout, then permit them to populate the group with bankster insiders, you have formed the recipe for financial Armageddon.

This whole exercise is a fucking joke, only the joke will be on all the little guys out there who will go to the ATM one day and find that their pixels are either gone, rehypothecated, "vaporized" or simply do not buy anything anymore, because all fiat is now worthless. Look at all the cash sitting in excess reserves. It is an enormous quantity of dough and it must never see the light of day. If it is put out in the form of loans etcetera, the accompanying inflation will be biblical.

The reset is coming, and those of us who put a little aside in gold and silver will survive, but those who think the government is the panacea [think OWS and the 99%] will perish.

Got guns, beans and bullets? Some silver rounds and junk aren't a bad idea either. Too bad I lost all mine in a tragic boating accident last year. :-(

 

[DCFusor]

I just was thinking of something for the can-kickers. I think we know the eventual outcome when man is allowed to be as evil as possible in "assumed authority".

I cast and lubed about 6 lbs of really nice 204gr semi-waddcutters in .45 yesterday, hearing that in the right shape, form, and speed, lead alloys can be a PM, too...and practice makes perfect.

SA:
Right now, London is the biggest pile of :doodoo:.

I've been hearing that and mentioned it in another thread. Yeah - that's why above I said "martian" or some utterly binding arb - which we know doesn't exist. I was just sayin - if it did, this would be the time for them to get into action. But since we all know better, ancona is to the point at the moment. I just like exploring alternate universes of possibilities - it's an engineer thing. And you need to have a vision before it can be realized.

Oh, thanks for the recce on that options book - I'm enjoying reading it.

 

[swissaustrian]

Oh, thanks for the recce on that options book - I'm enjoying reading it.

 

[rblong2us]

the only CDS payouts we will see will be those that benefit the usual suspects.

Like TARP, MFingG and so much else, all designed to transfer what little remains outside their control into their insatiable maw.

So what happens when they tie it all down and no one else has any ?
How does that help them ?

 

[ancona]

As l,ong as CDS payments do not come out of my wallet in the form of a .Gov bailout, fuck 'em and feed 'em fish heads. If they try to make these fucktards whole on my dime, that's a whole other story. If the "banks" declare some sort of "force majeure" we coul;d all see a fantastic rise in our taxes when .Gov waddles in and tries to cover these bets.

 

[pmbug]

So it looks like today is the big day...

Greece’s day of reckoning with bondholders dawns with economists from Barclays Capital to Deutsche Bank AG concerned that the world’s largest debt restructuring will provoke aftershocks.

Eight months of negotiations reach a head with today’s deadline for private creditors to accept a bond swap aimed at writing off 106 billion euros ($140 billion) of Greek debt. The government vows to bind holdouts to the deal should participation fall short of its target.
...
Greece needs to complete the swap to qualify for a 130 billion-euro bailout by helping drive its debt closer toward a target of 120.5 percent of gross domestic product by 2020, from 160 percent last year. Greece needs the cash to meet a March 20 bond redemption of 14.5 billion euros and dodge a default that would jeopardize the euro’s existence.

The debt swap is “just another milestone on the long road to stabilize the euro,” said Thomas Mayer, chief economist at Deutsche Bank in London. “What we’re doing here is root canal work on the architecture of European Monetary Union.”

The goal of the exchange is to reduce the 206 billion euros of privately held Greek debt by 53.5 percent. Investors with 58 percent of the Greek securities eligible for the program had indicated participation by 5:00 p.m. in London yesterday.
...
The government has set a 75 percent participation rate as the threshold for proceeding with the transaction, in which bondholders will receive new Greek government bonds and notes from the European Financial Stability Facility. Goldman Sachs Group Inc. analysts wrote on Feb. 28 that a voluntary participation rate meeting that target might allow Greece to proceed without making losses involuntary by enforcing so-called collective action clauses.
...
Compelling holdouts to take part will likely trigger payouts on those contracts, analysts said. A final decision would be up to the determination committee of the International Swaps and Derivatives Association, a panel of traders and investors who rule on whether swap holders can collect by handing over the defaulted debt in return for payment.

“I do fully expect to be part of the collective action clause,” Patrick Armstrong, managing partner at Armstrong Investment Managers in London, said yesterday in a Bloomberg Television interview.

“There’s a potential risk for the banking sector writ large across Europe and further abroad” from the clauses, as underwriters of the insurance have to pay out and seek funds to do so, said Erik Britton, a director of London-based Fathom Financial Consulting.

Activating the clauses also sets precedent, allowing countries such as Portugal to mimic the initiative and providing another reason to steer clear of European debt, said David Kotok, who helps manage about $2 billion as chairman and chief investment officer of Cumberland Advisers Inc. in Sarasota, Florida.

“The actual use of a CAC would be a game changer beyond Greece’s borders,” he said. “It says ‘we can retroactively rewrite a contractual agreement.’ It’s one thing to threaten or cajole, but it’s another thing to do it,” Kotok said.
...

http://www.bloomberg.com/news/2012-...ing-aftershocks-on-borrowing-euro-credit.html

 

[KMS]

I woke up today kind of feeling like a kid at Christmas.

 

[DCFusor]

It won't be over, there will be the usual delay and baloney. So I'm not feeling like a kid at Christmas just now, because I don't believe the present is going to be under the tree.

 

[pmbug]

ZH reports:

http://www.zerohedge.com/news/greek-fresh-start-bonds-face-immediate-80-loss

 

[pmbug]

Greece Issues Statement On PSI, Says €172 Billion Of Bonds Tendered In Swap, Will Enact CACs, ISDA To Meet At 1pm To Find If CDS Trigger

 

[pmbug]

Yesterday's activation of the collective action clause (CAC) on Greece's domestic law bond swap means that the exchange will likely be deemed a credit event by the International Swaps and Derivatives Association (ISDA) today.
...
If, as expected, ISDA deems the swap a credit event, questions have been raised as to how the CDS auction process will work, given that the bonds on which the CDS were written - the old bonds - will no longer exist. If the CDS payout is based on the new bonds - worth 70% less than those they replace - there are concerns over the viability of the sovereign CDS market.

ISDA has come under sustained criticism over potential conflicts of interest in its determinations committee (largely made up of the banks that will be facing payouts if the CDS are triggered), and earlier this month determined that the Greek private-sector involvement (PSI) process did not constitute a credit event as it is "voluntary". But the activation of the CAC changes all that.
...

http://www.euromoney.com/Article/29...omestic-law-CAC-could-trigger-CDS-payout.html

 

[DSAbug]

Who wins and who loses if the CDS' are triggered?

 

[pmbug]

CDS pay out = banks lose money, CDS market remains intact

CDS do not pay out = banks retain money, CDS markets implode

Looks to me like banks have a choice to accept immediate pain for long term stability or take short term immunity and structural disaster.

 

[DSAbug]

CDS pay out = banks lose money, CDS market remains intact

CDS do not pay out = banks retain money, CDS markets implode

Looks to me like banks have a choice to accept immediate pain for long term stability or take short term immunity and structural disaster.

Well.. if the CDS does not pay out, it means that those who were using CDS as a hedge (which really wasn't that many people) end up getting stuck in a situation where their hedges are worthless. That means they will have to sell the underlying security to reduce their exposure instead of relying on OTC derivatives to hedge. That means HIGHER interest rates.

The CDS market will HAVE to implode at some point.. Why NOT now?

 

[DSAbug]

haha

2 minutes later.. It's a credit event

 

[rblong2us]

reckon on CDS agreements being voided, i dont see any alternative .....

theyve already demonstrated that contract law only works when it suits them

there will be new ways to paper over the borrowing risks, the main one being unlimited printing and 'recapitalising' the TBTF's.

So Greece is in default ........ and ?

 

[swissaustrian]

Here you can see who's in trouble now (hint: the squid) and who isn't (hint: the one's who invented CDS's) :

:doodoo:


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