Thursday, March 1, 2012


I really want to see what happens to the CDSs out there and just how much of the Greek debt is covered by these things.  But first we have to have a default and according to the ISDA, we don't have one...yet.

This morning, the ISDA ruled that the mere existence of a Collective Action Clause inserted by the Greeks ex post facto in bond indentures governed by Greek law does not constitute a default and neither does unequal treatment for the ECB in any write-down of Greek debt.  Ok so far.  But what happens if certain bond holder refuse to fold and do not join the restructuring even in the face of these clauses?  Ah, that's a very different thing indeed...or at least that was indicated today in the announcement.  Do we know or suspect any more than we did yesterday and if not why is this important?  Well, that's because the Euros, whether by design or by accident, put themselves into a bit of a box.  While all this was going on at the ISDA, the Euros announced that there would be no bail-out on March 9 unless all the private creditors agreed to the debt swap.  With that comment and the comments from the ISDA today, I would think that bondholders holding CDS cover obtained a significant amount of leverage against agreeing to the swap. At some point they are going to get 30% on the face amount and if you were a speculative purchaser such as a hedge or vulture fund, your downside is probably limited.  Sooooo...this could get very interesting over the next few days as the clock is really running.  Let's see who blinks first.

 I watched a bit of Mr. Bernanke today completing his second day of Congressional testimony, this time before the Senate.  Not much to add.  What struck me was that in two days none of our elected officials seemed overly concerned about the absolute flood of liquidity taking place all over the globe.  It's astounding, really.   There isn't a central bank around that isn't just shoveling money out the door and yet it doesn't appear to be a concerted action.  Nor is there any expressed concern about rising inflation or commodity prices.  Time once again to talk to with my Really Smart Friend, Larry, to get to the bottom of this.  Bet he's as baffled as am I.   Later.

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