Greek Credit Event May Have Occured are The PIIGS Next?

erudne · Mar 9, 2012

ISDA determines Credit Event has Occurred

Boom.

CDS insanity begins.

Statement via from the ISDA:

ISDA EMEA Determinations Committee Accepts Question Related to a Potential Hellenic Republic Credit Event

March 9, 2012

NEWS RELEASE

For Immediate Release

ISDA EMEA Determinations Committee
Accepts Question Related to a Potential Hellenic Republic Credit Event

LONDON, March 9, 2012 The International Swaps and Derivatives Association, Inc. (ISDA), as secretary to the Determinations Committees (the DCs), today announced that a question relating to a potential credit event with respect to the Hellenic Republic (Greece) has been submitted to, and subsequently accepted for consideration by, the EMEA Determinations Committee.

The ISDA EMEA Determinations Committee will meet at 1PM GMT on Friday, March 9 to discuss the question and to determine whether a credit event has occurred.

Click on this link to see the Press Release at the originating website
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erudne · Mar 9, 2012

UPDATE 2 (2:48 p.m.): ISDA has now declared that Greece's restructuring does represent a default, meaning that credit default swaps will trigger. Read the statement here.

UPDATE (2:43 p.m.): An ISDA spokesman told Forbes no decision has been reached regarding on whether Greece's restructuring qualifies as a credit even, which would in turn trigger CDS protection.

A report by Derivatives Intelligence published around 2:00 PM New York time said the ISDA had indeed considered the PSI/debt restructuring deal a credit event. Their report from the supposed ISDA release, noting the application of collective action clauses had "reduced" bondholders' ability to receive payments, and that an auction for outstanding CDS would be held March 19.

Kevin Dugan, the journalist that published the initial report, tweeted a picture of the ISDA's supposed press release. Click here for the picture.

Greece did it! The Hellenic Republic executed the highly controversial PSI or debt restructuring deal, getting 85.8% of holders of Greek-law governed bonds and 69% of foreign-law bonds to tender. All eyes will now fall on the ISDA as the Greek government uses collective action clauses (CACs) to force holders of bonds governed by domestic law to take the debt swap, potentially triggering credit default swaps (CDS).

While Greece hasn't missed a bond payment yet, it has effectively defaulted by forcing a 74% haircut on those creditors that held out, as Fitch's calculations in their recent downgrade of Greece's sovereign rating to "selective default" show. The question of a Greek default may appear superfluous to some, given the country is relatively small and has been bailed out, but the resolution of the situation will set historical precedents that could take on massive importance if other peripherals, particularly Spain and Italy, face serious financing problems.

And that is why the International Swaps and Derivatives Association's decision on CDS is actually transcendental. Greece announced that holders of €152 billion of bonds governed by Greek law, of the approximately €177 billion issued, voluntarily tendered their bonds and accepted a 74% haircut. Also included in the deal were holders of laws governed by foreign law, generally British or Japanese, whom tendered €20 billion or 69% of bonds outstanding.

Using retroactively inserted CACs, Greece can force bondholders governed by domestic law to take the deal, as long as they meet a certain threshold, which they did: beyond the 85.8% of those bondholders that tendered their bonds, an additional 5.3% (about €9.38 billion in face value) voted to force the restructuring terms, without tendering their bonds. Presumably, that 5.3% consists of bondholders that bought CDS protection, and need the CAC implementation to trigger that protection.

At the end of the day, this means Greece is forcing 9.9% of bondholders under domestic law to both accept the retroactively inserted CACs and to take a 74% haircut (according to Fitch's calculations). Just to clarify, an additional 5.3% held out but voted to enforce the CACs, presumably because they bought CDS to cash-in on Greece's sovereign debt crisis.

It's all down to the ISDA now. The group has been under fire by the media for failing to consider Greece in default when it was clearly imposing a massive haircut on its creditors. To the ISDA's defense, no bondholder had actually suffered a haircut. As of Monday, when Greece implements the swap, this will have occurred, against the will of 9.9% of those bondholders.

The ISDA was set to meet at 1PM London time on Friday to figure out if a restructuring credit event had occurred, a circumstance that would trigger CDS. Both Nomura and Barclays have come out expecting the ISDA to rule in favor of a credit event, thus triggering CDS protection.

The net notional value of CDS outstanding is relatively small, around $3.2 billion. Barclays' analysts considered the process to be "relatively uneventful" given how small the actual liabilities are. But they are missing the point. As the ISDA has made clear in the past, these products are in their infancy and are in a process of evolution. The Greek restructuring is a defining moment for CDS and other derivative products, giving the ISDA's decision value in terms of precedence, much like a in a legal system based on jurisprudence. The net notional value of total CDS outstanding is $15.7 trillion according to DTCC, that's larger than the U.S. economy.

The issue of moral hazard is unavoidable within the ISDA. Among the parties voting to determine if there will be a credit event in Greece are institutions like Goldman Sachs, Morgan Stanley, JPMorgan, Deutsche Bank, BNP Paribas, and Societe Generale. Hedge funds like Elliot Management, Citadel, and D.E. Shaw are part of the decision-making group too. Some of these institutions have tendered their bonds, others, probably, have placed their bets on a Greek default.

Whatever the ISDA decides, the future of CDS is on the table. And, if the European sovereign debt crisis takes a turn for the worse, as it probably will, and Spain or Italy come under fire by bond vigilantes, then the ISDA's decision on Greece will take on added importance.

<broken link removed>
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erudne · Apr 5, 2012

I see someone has taken down the thread on Spain:
The Pain in Spain....is a forecast of what the USA will be facing

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<broken link removed>

Another week, another bout of social unrest in a Euro peripheral nation, if the fourth largest econony in the area (Spain) can even be called that. Yesterday's action saw more than a million people take to the streets in protest, while several million actually participated in the 24-hour general strike (about 77% of union workers), resulting in 176 arrests and a 104 injuries. It is estimated that 91% of all large business employees took part in the strike and/or occupied the streets. The Spanish politicians, of course, tried to downplay the rate of participation and claimed victory because the strike wasn't as bad as the last big one in 2010, but those claims merely reveal how their desperation is taking on a ridiculously childish quality at this point.

All of this was in response to newly proposed budget cuts of €27bn that are the harshest in Spain's history (along with a 7% rise in electicity/gas bills), but are STILL estimated to fall well short of what's needed to meet the deficit targets required by the Troika gang. In fact, as TAE readers (and Greeks) should know by now, this severe austerity virtually ensures that deficits and sovereign rates will spiral out of control, necessitating calls for bailouts with capital that simply doesn't exist. With a general unemployment rate of about 23% and youth unemployment at stunning levels of 50%, it is rather surprising that the pain in Spain isn't projecting itself into the streets with even greater force. One thing is for sure - Rajoy and his administration is extremely flustered, and the Eurocrats must be soiling their undergarments right now.

When the "bond vigilantes" show up at the Spanish Treasury's doorstep, because of their unprecedented austerity measures, there is no possibility of a bailout fund or debt restructuring plan that can quell the markets and ease the pain. The Spanish people will not endure any of it for much longer after seeing in no uncertain terms how it has gone and continues to go for the Greeks, who are equally unemployed and at their wit's end. Indeed, Rajoy's latest austerity proposals didn't even last more than a few hours before it was universally shot down by economists and analysts, and now everyone is wondering when exactly Spain becomes the new Greece - bailouts, austerity, rage and all.

Look at the wall art picture the author has at the link.......this is in Madrid, Spain.

kenno · Apr 23, 2012

Dutch Goverment Resgins
The Dutch government, one of the most vocal critics of European countries failing to rein in their budgets, quit Monday after failing to agree on a plan to bring its own deficit in line with EU rules.

Queen Beatrix's office said she had accepted the resignation of Prime Minister Mark Rutte and his Cabinet after Rutte informed her talks on a new austerity package collapsed over the weekend. (AP)http://www.ynetnews.com/articles/0,7...220191,00.html
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What will the Govt Be replaced with?

kenno · Apr 23, 2012

Taking a cue from Europe, U.S. markets are tumbling as traders fret about economic and political developments in the eurozone currency bloc. The Dow is down 144 points, or 1.1%, while the broader S&P 500 is off 1.2%. Meanwhile, the yield on the 10-year U.S. Treasury is down 0.039-percentage point to 1.926% as market participants seek shelter from the heavy selling.

More headlines from FoxBusiness.com:
Fox Business | Business News & Stock Quotes - Saving & Investing

erudne · Apr 23, 2012

In 1870 France underwent a Marxist Revolution (the Marxist Manifesto was printed in 1848). French Marxists Occupied public squares and proclaimed themselves indipendent of France's laws. 50,000 died in the ensuing Marxist violence.
1968 and another Marxist Revolution in May which rips France apart, within 2 years Communists take control of the French Govt.
Bill Ayer's, funded through Canada and Cuba launches the "Summer Of Rage" 2 months later. American cities burn, the Communist Front, Tom Hayden, John Kerry, Jane Fonda, Ted Kennedy, Barney Frank, Nacy Pelosie, siezes control of the Democratic Party changeing American Politics for 60 years

knuckle Head · Apr 23, 2012

Just a matter of time people,

Usually I would post multi Links to all kinds of articles reinforcing statements already made, but this is one my lows when i cannot read any more, just too dang depressing to read this stuff continously.

EZLivin · Apr 23, 2012

For sure. Some days the bombardment of FUBAR economic news from around the planet really drags me down. I have to keep up with it because it is a large and necessary part of my work, but the constant onslaught of sheet sure drains me some days. Here are a couple of posts that got my attention today (I focus on economics and currencies, so always check in on Jim Sinclair and Martin Armstrongs' latest):

Sinclair: "Gold is officially replacing the US dollar June 28th. The cat is out of the bag....you are booting any nation that dares to refuse to be legislated by any other body than themselves out of the SWIFT system. You have officially made gold money. Now what are you going to do, declare economic war on China? They will fire dollars back at you. You just might end the economic world as you knew it." (By "official" Sinclair is not referring to some official mandate, but to the result of the West barring access to SWIFT.)

Sinclair: "The implications of China paying for Iranian oil in gold is the most important event in the modern history of gold."

Martin Armstrong: "I was speaking with some people on Capitol Hill who are becoming alarmed at what is starting to appear to be a hidden oligarchy behind eliminating all constitutional rights and converting the United States into the new East Germany....There is so much more going in behind the curtain it is really getting bad. We are headed into a storm cloud of such a Crisis in Democracy that starts 2015.75 that I fear the future for my own posterity. Thank God I will not have to see what is left of the world 30 years from now."