I think that was the stupidest move by EU politicians in a verry long time. Or by any politicians. Investors bought (and sold) CDS on sovereign debt to hedge their bets. or to speculate. Irrespective, that was an instrument and a market that was allowed by the regulators to develop under their very noses and they chose not to regulate it.

Now that the time has come for insurers to pay the insured, the politicians decide to interfere in the contract - with no obvious benefit to the state.. On the other hand, it all but kills the sovereign debt market. Now that there is no way to hedge sovereign debt, who in their right minds would want to hold Italian/Portuguese/Irish debt????

Way to go EU...

"the politicians decide to interfere in the contract " you mean by proposing "voluntary" haircuts or did I miss some other interference?

there was nothing voluntary about the haircuts. the term 'voluntary' was forced down their throats only because voluntary restructuring of debt does not trigger payments of CDS contracts.

Now, just for example, lets say Swiss Re sold some CDS protection on Greek debt to Soc Gen. Greece defaults > Swiss Re has to pay up and make Soc Gen whole again. But if you rename default to a voluntary debt restructuring, then no payouts are triggered >> Swiss Re make out like bandits and Soc Gen gets screwed (cause they paid insurance premiums, but when they get burned the EU steps in and says sorry thats not really a 'credit event')

how does Greece or EU benefit? Zilch.. some private investors get money for nothing, others get burned... what business does the EU have interfering with private contracts between 2 parties?? Nada

It wasn't a bail-out of Greece - it was a bail out/whitewash of the entire CDS system. That's why the bank write-downs were 'voluntary', to avoid triggering CDSes which those who wrote them couldn't possibly pay. The banks who accepted the writedowns will then be compensated by the back door. So - the CDS writers off the hook, the banks off the hook, the European population picking up the tab.

Of course, there's nothing to stop other parties holding Greek debt from claiming 100% of what they are owed and I believe many hedge funds are doing just that, on the basis that the 50% bank write-downs leave more money in the Greek pot to pay other creditors. A total joke, backstopped by the European taxpayer.

Credit Default Swaps are the glue which held the whole fraudulent mess together and enabled the continuation of absolutely suicidal amounts of lending by banks well beyond what would otherwise be possible. The bailout of AIG in the states was just a backdoor bailout of their entire financial sector which depended on CDSes wrote against toxic debt by AIG paying out to stop the banks losing even more money.

The whole thing of course was unregulated - at the behest of the financial sector who campaigned against attempts to impose oversight. There products were sold as 'insurance' and used as such by the banks and credit agencies to justify AAA ratings yet weren't subject to the same regulation that insurance products would be with the result, as we saw with AIG, that the money simply wasn't there to pay out in the event of an actual default.

Worse, they weren't even used solely as insurance as anyone could take out a CDS. You could have dozens of parties 'insuring' against Greek default whether or not they were actually holding Greek debt. It was just one big casino operation with the house figuring that they would never have to pay out ..... (or if they ever did have to do so, the state would step in. As has happened)

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Member #14!

The EC leaders talk about a "haircut" as if it is not a default.

If I lent you chf 10,000 and you then told me that you would only be able to pay me back chf 5,000 eventually.
Most people would say that you have defaulted without doubt!

Another thing that has to be asked is if companies / governments do default; will the CDS companies/banks be actually able to pay the debt?
I have my suspicions that the answer is NO !

As I keep saying; we have seen nothing yet of the financial crisis; this is just the start.

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I do not have friends..........I have contingent liabilities

True
buy gold - buy gold

Tough time to be a bank

• Moody's Investors Service has today placed on review for downgrade the long-term ratings of Credit Suisse Group AG
• UniCredit SpA, Italy’s biggest bank, posted a surprise 10.6 billion-euro ($14.5 billion) third- quarter loss after writing down years of acquisitions and said it will close its western European brokerage to rein in costs.

Moodys also downgraded Raiffeisen yesterday from AA1 to AA2; who knew....

Moody's also thinks that it's winter and it's going to get cold...

Rating agencies are a waste of time and space.

Better than nothing

Recent news

UBS credit rating was reduced to A from A+ by Standard & Poor's

Central banks (Bank of England, Federal Reserve, the Bank of Japan, the ECB, the Bank of Canada and the Swiss National Bank) said today they would improve liquidity by lending more money to cash-strapped banks & would cut the price of emergency dollar loans by 0.5 percentage points, and extend the scheme until February 2013.

Printing money again?
Inflation

What is the alternative though? The European politicians seem to be unable to do anything other than last minute and relatively small scale rescues which are just delaying the problem, when what is really needed is something big and substantial to restore confidence.

just kicking the can down the road.

Myself I think they have to find an orderly way for certain countries to leave the euro.

I do not see another solution; the "rich" countries cannot continue to support the ones who do not follow the rules or they will also be finally dragged down.

Reminds me of one of those old war movies where a ship sinks & there are not enough lifeboats; so the people in the water keep fighting to board the boats until they eventually sink....

yup, they've restored confidence alright. we are now confident that..

a) the political system has no solutions to offer, other than kicking the can down the road, and letting the next set of elected officials deal with the mess.

b) the solution to almost every problem is to print more money.

I think they're just buying some time to do a 'planned' dissolution of the euro instead of the days they had left before it became a rather unplanned chaotic mess. I figure since they all met in/with the US, someone had a 'come to jesus' talk with the euro folks and made it pretty clear that chaos was not an option, even if the QE and bailouts aren't very attractive, a bank run would be far, far, less appealing. I think we have until about May before things get angsty again if they still don't address the problems of the euro.

Just to boost everyone's "confidence" here.
Pretty *scary* - and I mean SCARY -article over @ the Law column (Reuters).

Apologies for a possibly sh1tt-y start of your business day, but I really think that it is high time that every man, woman, child and household pet takes the blinkers off....
I also think it is high time that some sort of Nuremberg Trials of the fin'l system take place :-/

Oh yes - Merry Niklaus or whatever....

Paul

I just cannot believe how naive the majority of people are of what is and going to happen out there.

Virtually all the banks are skint (even Swiss) because they have not put in the real Bad Debt Provision. The reason they have not done this is because a Debt is an asset on the balance sheet.

I am actually enjoying this Financial Crisis Bank News.
I have time to read everything that is going on and what the governments are saying and doing is indeed corrupt.

All you people that think that you have a secure pensions / investments that are going to support you when you retire (if you will ever be able to from how I see things), you had better wake up.

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I do not have friends..........I have contingent liabilities

I always watch the Max Keiser Report on Youtube or RTv, and it is indeed frightening.
The whole of the financial system seems corrupt.
The debt figures are astronomical, seems incredible that people think this money can ever be repaid.

But, what to do?

As widely forecast the ECB has today cut interest rates by 25 basis points to 1%. This together with the earlier cut means that this years two ECB increases are now cancelled. I always thought that this years two ECB increases were (how shall I write this ) eccentric decisons!

No clue how the politicians can/will fix the euro crisis; with these repeated last stands & crisis meetings their credibility has ebbed away. I fear the worst & hope for the best.

"politicians" can't "fix" anything.... It's way over their limited skills, it's even way too messy for those from the financial world. The only thing everyone is trying to protect is - yet again - the banking system.
If multiple banks go bust in several countries at the same time, there's going to be blood on the streets IMHO. But to keep the banks alive this game of "Let's Pretend" cannot be allowed to end

P.