More: http://silverdoctors.blogspot.com/2012/01/isda-is-behind-attempt-to-appeal.html
ISDA set up us the (CDS/derivative) bomb. :flail:
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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.
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Back in october, they were talking about 50% haircuts, now it's 60%...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).
... 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. ...
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.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.
Oh, thanks for the recce on that options book - I'm enjoying reading it.
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.
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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.
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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.
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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.
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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.
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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.
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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.
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