9-Apr-10 News -- Greece crisis worsens -- again

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John
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9-Apr-10 News -- Greece crisis worsens -- again

Post by John »

9-Apr-10 News -- Greece crisis worsens -- again


** 9-Apr-10 News -- Greece crisis worsens -- again
** http://www.generationaldynamics.com/cgi ... 09#e100409


Contents:
"Greece's crisis worsens again, as bond yields surge to new highs"
"Greek credit default swaps go parabolic"
"No Greek 'contagion'"
"Additional Links"

ridgel
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Re: 9-Apr-10 News -- Greece crisis worsens -- again

Post by ridgel »

If insurance costs 435K per 10M insured, that would mean that investors on average think there's a 4.35% chance of Greece defaulting on 100% of its debt within a year. Or I suppose it could also mean they think there's a 21.5% chance of them defaulting and investors getting 80 cents on the dollar. Either way, it still seems like a fair number of investors expect no default and a bailout. As they probably should based on experience, considering that just about everyone else got bailed out in 2008.

What this means is that if there is a Greek default then complacent investors will get a bucket of ice water dumped on their heads. At that point it's every man for himself, as the guaranteed bailout, the Greenspan put, the too big to fail will be definitively broken. Just the rise in interest rates alone would be enough to crush any country or company already struggling to afford low interest rates. That's why Greece is important - it's a line in the sand for bailouts.

If I were the guys running Wall Street, I'd let the Greeks sweat it out for a bit longer until they agree to serious concessions. Then I'd call up my buddies at the IMF and send them in with $20 billion in freshly created cash and a list of austerity measures. Then I'd make a bundle selling back the Greek bonds I bought during the crisis. Hey, it worked with Mexico in 1994, Korea in 1998, Argentina in 2001. Why mess with a good thing?

mannfm11
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Re: 9-Apr-10 News -- Greece crisis worsens -- again

Post by mannfm11 »

The default swap is an interest differential and a bet. It is a futures contract or at least priced that way. Should the spread go to 20%, the person who sold the contract at 4% would likely have to post 16% collateral. It is also a summation contract in that 4.35% is only the first year premium of a 5 year payout. Thus, someone might be making a bet, but then again, someone else might want the interest spread on Greek debt without actually buying the debt itself. CDS's allow hedge funds to leverage their capital. Thus a fund with $1 billion might sell $5 billion in swaps on a variety of debt, including Greece. That way they take in 20% if there are no defaults and can have a portfolio. This is the real contagion, what happens when the next 5000 mini AIG's go up in smoke?

There are either plenty of liars or pure idiots out there now. The US banking system, at least the big banks, the too big to fail banks are broke and I mean broker than they would ever earn themselves out of, mainly because the money doesn't exist, save them being able to loot their own customers. All the money in existance is owed either by the Fed or one of its banks. All this money is owed back to the banks, but not by the customers to which it is owed. Anything topples that line to any significant extent, they roll over. Seeing as the big US banks are again choking the bankrupt pension funds into crappy stock investments a little at a time and are driving stock prices up artificially by manipulating the market, a downturn this time would Japanize them permanently. They are poised to pass the bag of barnyard fertilizer to the customer, but the earthquake might just hit first, at which time the bag would be left with those that held the CDO's last time before they could pass them. I wonder how may puts Goldman has bought? I bet not many.

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