4 ms·

If I were worried about this point (and a holder of a lot on CDS 'insured' bonds), I'd get a friend that was immune to 'arm twisting' to buy 1MM of a particular

by mdda 15y ago

If I were worried about this point (and a holder of a lot on CDS 'insured' bonds), I'd get a friend that was immune to 'arm twisting' to buy 1MM of a particular issue, and play extremely hardball with the ECB. Eventually, a payment would not occur, and there would be a solid 'Credit Event' to trigger all the CDS.

marshray 15y ago
NYT: "Holders of short-term obligations would be able to swap their notes for debt with longer maturities and backed by high-rated bonds. An organization that includes most major European banks said its members would accept the offer and expected 90 percent of all Greek bonds to be exchanged. [...] financial institutions that own Greek bonds would effectively contribute 54 billion euros through 2014, largely by accepting reduced interest payments, and will stretch their maturities to as long as 30 years." I don't understand. Are 90% of Greek bonds truly held by organizations susceptible to arm-twisting by the ECB to the tune of 54 gigaeuros? How long is that charity coalition going to hold together once they see others collecting on their CDS policies? My guess is that something more than 10% those Greek bonds are held by entities which, in reality, are for-profit corporations with shareholders that know how to do a little arm-twisting of their own.
- tomkarlo 15y ago
  If you're a huge national pension fund that holds both Greek debt AND, say, a lot more Spanish debt, it's in your interest to exchange (and prevent contagion) even if other holders are making out better by not exchanging. If everyone refuses to exchange, Greece defaults and you could see contagion that impacts the rest of your portfolio. Most major holders have probably already written down the value of any Greek bonds anyway.
  - _delirium 15y ago
    I believe that's true of the large private banks also, which is part of why this group amounting to 90% is on board. It's in the rational self-interest of a bank like Deutsche Bank or Societe Generale to take a haircut on their Greek-debt portfolio if it keeps the rest of their EU bond portfolio from blowing up--- especially if they can get a deal like this one where the EU governments partially reimburse the haircut.
    - marshray 15y ago
      OK, but what if you were using these Greek notes as collateral? Suddenly they're downgraded and you on the phone with your lenders. Are your lenders on board with this plan? They have reporting requirements too, it seems like you might be under an obligation to invoke your CDS policy if at all possible. After all, why would the world spend $B on CDSs and then not invoke them when it came down to it?
      - tomkarlo 15y ago
        Unless the notes were a large portion of your portfolio, it's not a problem. Given the relative size of Greece to the rest of the EU, unless you were running the "Greek Debt Investment Fund" you're still probably better off helping to prevent contagion and your lenders are too.
        mdda 15y ago
        But... If I'm a hedge fund, why even own Greek debt plus the insurance? Just buy the insurance, and burn Greece. I'd also be buying (CDS) on other tipping-point countries, and watching the knock-on effect. Ah : But that demonstrates how terrible CDS is, and how amoral hedge funds are. Actually (IMHO) the fact that Greek CDS was so cheap to buy was just an indication of how little trust people have that politicians respect the law in European countries. It would have been far cheaper to have sorted through this mess on day one, rather than spending taxpayer funds giving Greeks a lifeline when the changes that they have to make were always inevitable. And now the politicians words have been demonstrated to be completely worthless, there'll be a lot more pain - in countries where it might otherwise have been unnecessary.
        achompas 15y ago
        But... If I'm a hedge fund, why even own Greek debt plus the insurance? CDSes are generally used to hedge a position. If a hedge fund holds both Greek bonds and CDSes on those bonds, they come out ahead regardless of what happens to Greece.
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by mdda 15y ago

marshray 15y ago

NYT: "Holders of short-term obligations would be able to swap their notes for debt with longer maturities and backed by high-rated bonds. An organization that includes most major European banks said its members would accept the offer and expected 90 percent of all Greek bonds to be exchanged. [...] financial institutions that own Greek bonds would effectively contribute 54 billion euros through 2014, largely by accepting reduced interest payments, and will stretch their maturities to as long as 30 years." I don't understand. Are 90% of Greek bonds truly held by organizations susceptible to arm-twisting by the ECB to the tune of 54 gigaeuros? How long is that charity coalition going to hold together once they see others collecting on their CDS policies? My guess is that something more than 10% those Greek bonds are held by entities which, in reality, are for-profit corporations with shareholders that know how to do a little arm-twisting of their own.

tomkarlo 15y ago
If you're a huge national pension fund that holds both Greek debt AND, say, a lot more Spanish debt, it's in your interest to exchange (and prevent contagion) even if other holders are making out better by not exchanging. If everyone refuses to exchange, Greece defaults and you could see contagion that impacts the rest of your portfolio. Most major holders have probably already written down the value of any Greek bonds anyway.
- _delirium 15y ago
  I believe that's true of the large private banks also, which is part of why this group amounting to 90% is on board. It's in the rational self-interest of a bank like Deutsche Bank or Societe Generale to take a haircut on their Greek-debt portfolio if it keeps the rest of their EU bond portfolio from blowing up--- especially if they can get a deal like this one where the EU governments partially reimburse the haircut.
  - marshray 15y ago
    OK, but what if you were using these Greek notes as collateral? Suddenly they're downgraded and you on the phone with your lenders. Are your lenders on board with this plan? They have reporting requirements too, it seems like you might be under an obligation to invoke your CDS policy if at all possible. After all, why would the world spend $B on CDSs and then not invoke them when it came down to it?
    - tomkarlo 15y ago
      Unless the notes were a large portion of your portfolio, it's not a problem. Given the relative size of Greece to the rest of the EU, unless you were running the "Greek Debt Investment Fund" you're still probably better off helping to prevent contagion and your lenders are too.
      - mdda 15y ago
        But... If I'm a hedge fund, why even own Greek debt plus the insurance? Just buy the insurance, and burn Greece. I'd also be buying (CDS) on other tipping-point countries, and watching the knock-on effect. Ah : But that demonstrates how terrible CDS is, and how amoral hedge funds are. Actually (IMHO) the fact that Greek CDS was so cheap to buy was just an indication of how little trust people have that politicians respect the law in European countries. It would have been far cheaper to have sorted through this mess on day one, rather than spending taxpayer funds giving Greeks a lifeline when the changes that they have to make were always inevitable. And now the politicians words have been demonstrated to be completely worthless, there'll be a lot more pain - in countries where it might otherwise have been unnecessary.
        achompas 15y ago
        But... If I'm a hedge fund, why even own Greek debt plus the insurance? CDSes are generally used to hedge a position. If a hedge fund holds both Greek bonds and CDSes on those bonds, they come out ahead regardless of what happens to Greece.
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