Sovereign debt bubble thread

[Iormlund]

We are now officially back in recession, as predicted.

[MadImmortalMan]

I don't think we're going to be able to get away with a non-trigger default again.

ISDA Set to Decide on CDS Rules Revamp Within Weeks

By Katy Burne

When is a default a default and when does a default trigger payouts on credit default swaps?

CDS market watchers and participants have been raising those questions for more than a year. But the issue has garnered greater urgency in the wake of grievances from CDS buyers who felt they weren't adequately covered going into the Greek debt restructuring.

Now International Swaps and Derivatives Association is set to provide answers.

A lawyer for ISDA says the financial-market trade group will decide on potential revisions to legal wording governing the $32 trillion CDS market "within weeks."

David Geen, general counsel for ISDA in London, said in an interview that the association had been "actively reviewing" potential changes to its credit-derivatives definitions for some time and is "looking to make possible amendments in the near future."

The comments come as the association is set to kick off its 27th annual general meeting on Monday night in Chicago.

ISDA and some analysts said the Greek CDS settlement auction was a success, but detractors complained of quirks in the process that fixed payouts on the insurance-like contracts. Some parties that bought protection were worried they might not be able to secure payouts if Greece structured its debt exchange in such a way as to avoid triggering CDS.

Now, with Portugal and other sovereigns still struggling, there are concerns from some industry participants that these issues and potential new ones could undermine market confidence in CDS anew and roil the underlying bonds the contracts are designed to protect.

Geen declined to comment on specific fixes to the contract language that are under discussion but said the list of possible amendments is not limited to sovereign-related issues.

After the Greek restructuring, which triggered nearly $3 billion of payouts to holders of CDS in March, there is "a bit more momentum" to make changes, said Geen, but "whether it is a series of small fixes or a root-and-branch rewrite is still to be decided."

Sovereign CDS constitutes $2.9 trillion of the overall CDS market; the other $29.5 trillion of CDS offers protection against corporate-debt defaults, according to the latest available figures from the Bank for International Settlements.

The part of the definitions addressing debt restructurings already have been amended three times, in 1999, in 2001 after the Argentina debt crisis and most recently in 2003.

ISDA went to members of its Credit Steering Committee–including banks and asset managers–a year ago about some of the things that it believed needed changing, but they didn't have time to make it a priority then, Geen said. Now it has zeroed in on select parts of the definitions that could be changed and, where necessary, will work with members to recommend amendments to the steering committee which has to approve them.

Over the last year, market participants criticized existing definitions for not offering enough assurance that CDS would protect buyers. Some users of the instruments–and several outside observers who were worried about CDS roiling the fragile sovereign-bond market–said the definitions needed an urgent revamp.

[derspiess]

None of that really matters when the after hours market wets itself at 4am because the eurofaggits shoot themselves in the ass.

In other words, I'll trust my gut over your chart.

I pulled out of whatever foreign stuff I had in my pitiful 401k.  It actually served me well the past couple years, but everyone's telling me to get out now.  Moved it all into a Large Cap fund that seems like a safer bet.

[Ed Anger]

I've moved my assets into a large building I'll call a 'money bin'.

[Ed Anger]

Watching MSNBC and one of the oil traders was talking revolution in Yurope. HEIL HITLER!

[MadImmortalMan]

EURUSD has been below 1.30 a couple times today. Market's shitting its pants. Vive le France.

[alfred russel]

It's not like any of these things are slowing the stock markets!

The stock markets are the value of typically larger companies, and even if the rest of the economy is crappy they are well capitalized and making money hand over fist. In the US at least.

[DGuller]

It's not like any of these things are slowing the stock markets!

The stock markets are the value of typically larger companies, and even if the rest of the economy is crappy they are well capitalized and making money hand over fist. In the US at least.

This is what bugs me about the stock index fetish.  It doesn't really represent the well-being of the economy at large, it just represents the well-being of those owning the call options on the assets of corporations.

[alfred russel]

Say you are a young person in Spain. Why would you stay in the country right now? Even if you are lucky enough to get a job, the wages and conditions have to be depressed since the employer knows you are expendable. I think it would be easier to learn German or English than to deal with that.

If many people think that way, then Spain is really screwed. The educated and ambitious will disproportionately go (with their associated future earnings), leaving behind people more likely to be a burden on the welfare state. I know this isn't a new phenomena--the US is populated with people of European descent for this reason--but never has it been easier to move within europe, due to a converging culture, easy access to language education, the internet, a common currency, lack of border controls, collapse of nationalism, etc.

[alfred russel]

This is what bugs me about the stock index fetish.  It doesn't really represent the well-being of the economy at large, it just represents the well-being of those owning the call options on the assets of corporations.

It is going to be less and less relevant. There are some US companies that now earn most of their money overseas. The day is coming, or maybe already here, when economic data indicating the relative slippage of the US economy is a positive for them, because that will weaken the US dollar more than offsetting their deteriorated US outlook.

[Sheilbh]

EURUSD has been below 1.30 a couple times today. Market's shitting its pants. Vive le France.

France isn't the worry.  It's Greece and Spain.  The Spanish report on the economy said industrial output declined 7.5% last month - far worse than expected - and I think there's a lot more worry about the banks.

[Tamas]

EURUSD has been below 1.30 a couple times today. Market's shitting its pants. Vive le France.

France isn't the worry.  It's Greece and Spain.  The Spanish report on the economy said industrial output declined 7.5% last month - far worse than expected - and I think there's a lot more worry about the banks.

Of course France is one of the worries.
Either Hollande, or Merkel, (or both) must retreat from their stance and lose political face back home, or their disagreement on wether more spending will save you from overspending will disable, and then destroy the eurozone.

[Valmy]

Vive le France.

Vive LA France.  Geez

[MadImmortalMan]

Vive LA France.  Geez

I'm not practically French like you. 

[Sheilbh]

Of course France is one of the worries.
Either Hollande, or Merkel, (or both) must retreat from their stance and lose political face back home, or their disagreement on wether more spending will save you from overspending will disable, and then destroy the eurozone.

Yeah, but traders can read polls.  They've been expecting a socialist victory and an Hollande victory, with all that entails, for the past six months.  That's expected and I think has largely been priced in.  The market perhaps would have responded to a Sarko victory.

The surprises are that over 60% of Greeks voted for anti-bailout parties and the country's now bordering on the ungovernable, the severity of the economic decline in Spain and the effect that will have on Spanish banks (who would have to be recapitalised by the Spanish state, putting further strain on Spain's fiscal situation).