Greece: Euro crisis
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love detective
there's no love too small
not even that - there's no requirement for the buyer of protection via a CDS to have made an underlying loan in the first place - it's the equivalent of being able to take out insurance on your neighbours house burning down or life assurance on someone you hate - it's not about insurance compensating you for a loss you've incurred, but instead about being able to (potentially) profit from the misfortune of someone else
legally it's illegal though for anyone to take out insurance on something they don't have an insurable interest in (i.e. your own house, your own life) - which is why CDS's are not legally treated as insurance (and instead as traded financial products), so they can get round all that and also don't have to comply with all the regulations governing the writing of insurance business
edit: also your previous point about taking out insurance on the insurance was actually happening, it's absurd the spiral and complex web of liabilities that it creates, similiar in a way to the web of inter insurance that nearly brought down lloyds insurance market in the 80's
gosub
~#
Whilst what you say about CDS is true its not applicable to these hedge funds- they wouldn't be being consulted if they didn't own the bonds. They are looking at a massive write down and an insurance wriggleout that can only put investors off a sector at a time it is crutial. All because the Greek government already sold its own CDS cover to the brother of the then Prime Minister.
Re: Churning. Used to see Phillip & Felix who started it back in the day. Personally chainsawed their HS125 after long nonpayement. Still got some bits ,cockpit is in the Science Museum somewhere
Re: Churning. Used to see Phillip & Felix who started it back in the day. Personally chainsawed their HS125 after long nonpayement. Still got some bits ,cockpit is in the Science Museum somewhere
love detective
there's no love too small
Yeah agreed - i was talking more generally about CDS's in principle
However the point remains that there's nothing stopping a holder of bonds/loans taking out insurance on them for many multiples of the actual loan exposure. So that gives them a seat at the table for things like talks on voluntary debt reductions (allowing them to hold out on it) while still having a net overall short position - thus giving them a perverse incentive to push for a disorderly and deeper default as they stand to gain more on the 'insurance' than they lose on the default on the long bond position
Also wouldn't be surprised if some of these hedge funds had bought CDS protection on greek debt a year or so ago when it was a lot cheaper, and only recently bought some greek bonds in the market now that their next to worthless in order to give them a seat at the table when it comes to talks on debt reduction etc..
No idea what your last sentence means
However the point remains that there's nothing stopping a holder of bonds/loans taking out insurance on them for many multiples of the actual loan exposure. So that gives them a seat at the table for things like talks on voluntary debt reductions (allowing them to hold out on it) while still having a net overall short position - thus giving them a perverse incentive to push for a disorderly and deeper default as they stand to gain more on the 'insurance' than they lose on the default on the long bond position
Also wouldn't be surprised if some of these hedge funds had bought CDS protection on greek debt a year or so ago when it was a lot cheaper, and only recently bought some greek bonds in the market now that their next to worthless in order to give them a seat at the table when it comes to talks on debt reduction etc..
No idea what your last sentence means
love detective
there's no love too small
gosub
~#
Vilifying private holders of government debt while the ECB and IMF rigs the table can only encourage the private sector to walk away from all European debt issues. Bond buyers aren't Wonga.com. they aren't in for the high returns its the safe solid foundation part of the books and its EU governance that's trashing
the market not greedy traders
A Dashing Blade
Takes horses to water but can't make donkeys drink
1) A year ago 5Y CDS's were trading at around 900, that's a chunky premium in anyone's language (remember that's the annual amount paid in quarterly installments)
2) Legging into a long CDS, long underlying on a 6 month view (so you've gotta pay out for the bonds as well, repoing them for eg doesn't give you legal ownership iirc) is (imo) not really a strategy that anyone's going to explicitly enter, it's just not . . . realistic (can't find a better word atm), too much can happen on that time frame.
love detective
there's no love too small
they (the private sector) may huff and puff along those lines - but the threat of a debt capital strike is a contradiction in terms - the state debt market is, collectively, too big to avoid - and for as long as national, or supra-national, bodies can print money and collect taxes the capital invested in state debt is not going anywhere else
love detective
there's no love too small
1. Are you suggesting that no one has bought protection on greek debt within the last couple of years as a punt on greece defaulting?
2. Are you suggesting that the various hedge funds who currently own, soon to mature, greek debt have just happened to own this debt for ever and a day - and just by coincidence find themselves with ownership levels at this stage that gives them a seat, and influence, at the debt reduction negotiations? what utter nonsense. It's quite widely reported that a lot of hedge funds have recently bought greek debt that's due to mature in the next few months at levels as low as 20p in the euro - even if they don't have related CDS's on it, they still stand to profit from a 50% haircut/writedown - as it means they get paid back at 50p in the euro.
A Dashing Blade
Takes horses to water but can't make donkeys drink
1) No, and, quite seriously, I fail to see how you could infer that from my comment. Simply pointing out that paying 900bps in quarterly installments is (in absolute terms) a chunky amount. These arn't futures where you simply put an initial margin down and pay the variation margin, you actually have to (continually) pay out when long a CDS.
2) No, and, quite seriously, I fail to see how you could infer that from my comment. Was merely doubting that anyone sat down and said "I know, lets go long Greece CDS's for 6 months and then cover ourselves by buying the bonds." Top of head a more efficiant use of capital would be to simply reverse-repo the bonds.
To contextualise your numbers, it's well worth anyone buying Euro Sov debt in the low 20's on an historic basis as Argentina was trading 20-25 after default (but before the restructuring) and I remember Ivory Coast quoted 18-22 when that civil war was going on in the early 2000's. As a rule of thumb, recovery rates on a decent sovereign tend to get marked at 30%.
2) No, and, quite seriously, I fail to see how you could infer that from my comment. Was merely doubting that anyone sat down and said "I know, lets go long Greece CDS's for 6 months and then cover ourselves by buying the bonds." Top of head a more efficiant use of capital would be to simply reverse-repo the bonds.
To contextualise your numbers, it's well worth anyone buying Euro Sov debt in the low 20's on an historic basis as Argentina was trading 20-25 after default (but before the restructuring) and I remember Ivory Coast quoted 18-22 when that civil war was going on in the early 2000's. As a rule of thumb, recovery rates on a decent sovereign tend to get marked at 30%.
littlebabyjesus
one of Maxwell's demons
Aren't you just making ld's point here?
Also, who is selling these debts at 20%? Is this hedge funds with deep pockets ripping off others with shallower pockets?
A Dashing Blade
Takes horses to water but can't make donkeys drink
Pretty much, most IB's seem to have come out in the summer in the mid-60's from what I can gather
love detective
there's no love too small
A dashing blade - a cursory glance at the facts as we know them:-
1. A number of hedge funds own reasonably substantial chunks of soon to be maturing greek debt, some of which have bought it fairly recently and as low as 20p in the euro
2. these hedge funds also currently hold CDS protection on that greek debt (evidenced by their desire not to sign up to a voluntary debt exchange as this would not trigger a default/payout under the CDS)
3. the positions talked about in 1 & 2 above, were entered into at some point in the past and generally by hedge funds who embarked on strategies to profit from a greek default
Now however the above situation came about, what we know is that it exists. So for you to doubt that anyone "sat down and said 'I know, lets go long Greece CDS's for 6 months and then cover ourselves by buying the bonds'" seems bizarre, as the facts as we know them shows that this is the situation that these hedge funds have ended up with.
The only thing that is up for discussion therefore and can not be proven by the facts as we currently know them is, whether this situation came about by intention or by accident? My assertion is that it came about by intention as hedge funds generally have mapped out strategies that guide their activity. It certainly seems more plausible on the balance of probabilities that this situation was intended rather than it just happening by accident don't you think
You even admitted in your reply to me above that despite it's high coupon, credit protection on greek debt was likely to have continued to be taken out in the last year or so, and that the hedge funds have not always owned the greek debt that they currently find themselves owning. Yet you still argue that hedge funds have not recently bought credit protection and even more recently greek debt. Your arguing against your own points here.
1. A number of hedge funds own reasonably substantial chunks of soon to be maturing greek debt, some of which have bought it fairly recently and as low as 20p in the euro
2. these hedge funds also currently hold CDS protection on that greek debt (evidenced by their desire not to sign up to a voluntary debt exchange as this would not trigger a default/payout under the CDS)
3. the positions talked about in 1 & 2 above, were entered into at some point in the past and generally by hedge funds who embarked on strategies to profit from a greek default
Now however the above situation came about, what we know is that it exists. So for you to doubt that anyone "sat down and said 'I know, lets go long Greece CDS's for 6 months and then cover ourselves by buying the bonds'" seems bizarre, as the facts as we know them shows that this is the situation that these hedge funds have ended up with.
The only thing that is up for discussion therefore and can not be proven by the facts as we currently know them is, whether this situation came about by intention or by accident? My assertion is that it came about by intention as hedge funds generally have mapped out strategies that guide their activity. It certainly seems more plausible on the balance of probabilities that this situation was intended rather than it just happening by accident don't you think
You even admitted in your reply to me above that despite it's high coupon, credit protection on greek debt was likely to have continued to be taken out in the last year or so, and that the hedge funds have not always owned the greek debt that they currently find themselves owning. Yet you still argue that hedge funds have not recently bought credit protection and even more recently greek debt. Your arguing against your own points here.
A Dashing Blade
Takes horses to water but can't make donkeys drink
In all seriousness LD, I can't make myself any clearer without writing a couple of pages of definitions instead of using jargon as a convenient professional shorthand.
You clearly know your beans but I suspect that you're not quite getting the finer nuances of my argument.
Please accept that I say that with the greatest of respect and have absolutely no wish to enter into a bun-fight over this.
You clearly know your beans but I suspect that you're not quite getting the finer nuances of my argument.
Please accept that I say that with the greatest of respect and have absolutely no wish to enter into a bun-fight over this.
hipipol
Peckham Wry
Anyone buying at 20c on the Euro will not have bothered with the CDS - thats so cheap there is absolutely no need to punt out futher lumpy wedge - unless you have access to really chaep financing funding a decent position will cost you large. Anyone who sold at 20c was in desperate shit need of cash by the way
Get near 40c (the likely price suggested by Alphaville) then the CDS makes sense with the currebt chats looking at haircuts in the 65/70% region
IF hedgies are holding are holding around 18% of outstanding Greek Sovs and they paid around the 40c mark, they will wait for the agreement of existing bondholders, banks and ins/pension cos to go the voluntary route and take the swap, they, the hedgies are still holding the notes, either the greeks defualt on the outstanding, thus triggering the CDS or they pay out on it, either way yer quids in.
Of course it was deliberate
Get near 40c (the likely price suggested by Alphaville) then the CDS makes sense with the currebt chats looking at haircuts in the 65/70% region
IF hedgies are holding are holding around 18% of outstanding Greek Sovs and they paid around the 40c mark, they will wait for the agreement of existing bondholders, banks and ins/pension cos to go the voluntary route and take the swap, they, the hedgies are still holding the notes, either the greeks defualt on the outstanding, thus triggering the CDS or they pay out on it, either way yer quids in.
Of course it was deliberate
dennisr
the acceptable face
A 48 hour strike with another 48 hour lined up to follow. Hospital occupied:
Greece: Latest austerity package evokes worker take over of hospital & 48hr general strike
"The fight back is however not isolated to protest and strikes.
As a new health bill is desperately being rushed through by UK's Coalition government; in essence opening the door to a takeover of our hospitals and national health service by private firms; A hospital in the Greek city of Kilkis has been subject to a takeover of a different kind. Not IMF led, not private or state but rather the workers themselves have taken complete control of their general hospital. So yes the Greeks do 'get it!' "
Greece: Latest austerity package evokes worker take over of hospital & 48hr general strike
"The fight back is however not isolated to protest and strikes.
As a new health bill is desperately being rushed through by UK's Coalition government; in essence opening the door to a takeover of our hospitals and national health service by private firms; A hospital in the Greek city of Kilkis has been subject to a takeover of a different kind. Not IMF led, not private or state but rather the workers themselves have taken complete control of their general hospital. So yes the Greeks do 'get it!' "
Lo Siento.
Second As Farce
Who should give up?
The Greek people should give up on Capitalism, unless they want to spend the next decade or more living in abject poverty to pay off debts they never benefited from...
teqniq
DisMembered
Barking_Mad
Non sibi sed omnibus
Some heavy shit going on in Athens tonight.
Strange, you meet a poster like love detective who DOES actually seem to know quite a lot about the confusing world of hedge fund gaming tactics in the international market place , and suddenly not being able to bamboozle him with jargon you don't really want to debate with him any more re your "finely nuanced" arguments.
Hmmm... seems to me love detective totally demolished your usual attempt to clear Hedge Funds and Finance Capital in general from having a well worked out, long term , pivotal role in manipulating markets and blatantly conspiring to destroy entire economies just so they can make a profit out of the chaos.
You really are the most dreadful pro capitalist apologist and fat cat's toady A Dashing Blade.
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