You win some, you lose some, and you learn a lot.

I was genuinely surprised by the ISDA decision, but major hat-tip to Zero Hedge, who called it right.

What had my nose twitching immediately after this decision was the word ‘unanimous’. How do folks get all unanimous about denying an obvious default?

The other thing I thought about was the information source ‘tipping me off’. They aren’t coming out of this too well, but that must remain a subject between me and them.

But my major mistake was assuming that the International Swaps and Derivatives Association might actually represent the full rainbow of people involved under the umbrella of that title. Big, page one error. Silly me.

I drilled down to ISDA’s European Determination Committee. This is the composition of the ‘dealing’ (ie, coalface-involved) institutions in the sector who have a vote:

Bank of America / Merrill Lynch
Credit Suisse
Deutsche Bank
Goldman Sachs
JPMorgan Chase Bank, N.A.
Morgan Stanley
Societe General

Every last one of that lot has a vast amount to lose from Hedge Funds picking up default insurance. And quite a few of them are either heavily exposed to Greek default per se…or have one or other kind of worm-can they wouldn’t like to be opened by a default.

In pretty much every way, failure to do due diligence on my part there; humble apologies all round. I do hope, however, to make up the deficit before the end of play today: we shall see.

However, moving along to other obvious flaws in the eurozone situation – and talking of Zero Hedge – regular blogger Reggie Middleton this morning looks at SuperMario’s latest LTRO comedy, and makes a very good point:

‘800 financial institutions 529.5 billion euros ($712.2 billion) for 1,092 days. Economists predicted an allotment of 470 billion euros, according to the median of 28 estimates in a Bloomberg News survey. In the ECB’s first three-year operation in December, 523 banks borrowed 489 billion euros’.

Why, he asks, does 523 banks desperate for cash growing to 800 preface good news? Why indeed….see my blog of yesterday.

Reggie joins me in laughing out loud at the idea of any eurozone lending  ‘filtering down’ from this second rescue bid for the banks. Meanwhile, what of those Hedgies and IIF members still wondering why on earth they should partake? Here’s a clue: speaking to MEPs at the European Parliament in Brussels yesterday, Jean-Claude Juncker urged holders of Greek bonds to take up the debt-swap, proclaiming – without evidence as usual – that there is no other solution beyond yet more budget cuts in Athens.

Why, we ask ourselves, is the Managing Director of Radio Luxembourg concerned to get the bondholders onside – I thought that was a done deal?

One other thing a negative decision from ISDA earns, by the way, is yet more time for the Berlin-Frankfurt axis to get ducks in a row for the planned 23rd March Greek default. And another way of achieving that is to drag out the budget cuts approval further still. So it is we read that eurozone finance ministers will run their blinkered eyes over Greece’s accounts again today…but aren’t quite ready just yet to approve them.

There’s a long way to go to the chequered flag on this one. I will try to avoid further pit-stops and pit-falls along the way.


  1. John

    As ZH has pointed out this morning, the voting members on ISDA who made this call comprise the big banks. I think they are all facing eachother in a big circle and pointing loaded (CDS) machine guns at the banks opposite. One goes down, they all go down….so best not push the “Credit Event” button, just in case…..


  2. If you are playing with fire, may I offer you some insurance? Of course, should there be an unforseen conflagration, I may decide not to pay out


  3. I certainly agree with your conclusions. ISDA did not trigger a credit event, but left the door open. It actually delayed the decision. The finance ministers will likely delay the decision. Dutch FinMin already said that a green light for the Greek bailout will probably not be given today.
    Both indecisions pass the time. The March 23rd theory is stronger…


  4. When a central bank is offering cheap money that can easily be invested elsewhere for a much higher return (the ultimate carry trade?) it seems very rude to refuse.

    If the offer was not restricted to banks and/or financial institutions, I’d ask for some myself….


  5. Agreed that you win some and lose some. But I do hope that you don’t lose on the predicted events of 23 March. Whenever they happen.


  6. And why – I ask myself, as the news of the ISDA ruling sinks grudgingly in – would the organisation sort of representing Hedgies drop them in the mire with such clinical accuracy?

    I think as zerohedge reported the ISDA members rep the banks so huge conflict of interest and saying yes would have blown them up.

    did you know that the ISDA members were one and the same?


  7. It all depends in the participation % in the PSI. If it goes well the CACs are not activated and so forth.
    If the CACs are activated forcing everyone to accept the deal why bother? Just make a Bruce Willis hairstyle instead of a haircut!


  8. That is about the measure of it. The ISDA committee made a decision not to make a decision. If you understand the basic rules of bureaucracy this means they can now call it to the attention of a ‘focus group’ who will then report back to the committee….or not. Preferably the latter as far as the committee are concerned. I know a man who made it to the very top of a major corporation obeying just one guiding principle: Never make a decision. It is his proudest boast!


  9. Surely, you can’t be in default until the due date arrives and that is 3 weeks away – however, most Analyst believe the ‘due date / default date’ will be the same date .


  10. Absolutely correct. ISDA does not represent the holders of the CDS -the hedgies – but the ‘insurers’ – the big banks led by our old friend JP Morgan, the Treasury’s own bank. No self interest or political influence here – no sirree!


  11. Naturally, they can’t declare a default now. What would that do to the carefully scripted timeline of March 23? But note that they made sure to leave all doors open for a change of heart later on.


  12. Here is the official ISDA decision ( my underlines ):

    Here is the BOD of DTCC :

    Here is a very important doc.. on Definicions..-referenced in the decision above- ISDA :

    When they position themselves Strategically on the Geopolitical Map, they wil trigger the CDS’s which should have been triggered since May 2010, when we signed the first Loan Facility agreement.

    I assume we doent have any stupid friends among us asking the silly question ” do they have the $, can they afford to pay CDS “?

    There are 2 ( two ) RULES to BE FOLLOWED.. simply :
    RULE #1 : ” as long as there are TaxPayers arroynd teh world, there is always going to be enough money and paper money”

    RULE #2 : ” the system prohibits 200+ “Sovereign” Countries from producing the money they need, and forces them to BORROW the MONEY they need.” ( Central Banks are owned by the same few individuals world wide… )



  13. I am genuinely surprised by this ISDA decision, but major hat-tip to Zero Hedge, who called it right.

    I got it right before ZH, John:

    Your view was correctly based upon what should have happened given the evidence available and that the Greek bond write-downs amount to a Default by any other name. Everybody knows that the ISDA decision is contrary to the reality of the situation and it has shot itself in the foot IMHO and also made it more difficult for EZ members to access the capital markets.

    Will ISDA maintain its pretence if Greece performs a hard default on about the 20th? or will it be saved by the US stepping in and declaring that the CDSs are unenforceable as @TRT mentions elsewhere? We are now deep in the realms of small p intl politics…..


  14. @Rowland – not just Siemens, Philips (NL) or any large corporation, British, US, UK … Tescos, Sainsbury will both have an arm that has a banking licence.


  15. @BT
    I agree with you, what JW says is what should have happened.

    All I can say is that when Greece does eventually default the crash will be 10x greater for every month that now passes – inflationary systems are not linear but exponential.


  16. So for all the big playas out there, you bought the world’s most expensive butt-ribbon paper, as you aren’t hedged at all, and you never will be. The corruption is so institutionalized that the dealers who write CDS are also the deciders of what triggers a credit event. Fox meet henhouse.


  17. Frankly I wish they would just get on with it! Then we can start clearing up the mess that is left. If there are any working brooms left after the tsunami of CDSs – all those sunbathing naked CDSs as well … surely they have had enough time to sort out those dumb banks by now?

    Oh, and where is our resident banker’s secretary surely she would have the inside on this? Come on, Jacquie/Yvette zeg maar!


  18. A small point of clarifiation…I don’t think ISDA has “delayed the decision”. It has responded to the two specific issues raised by events to date. That leaves the door open for additional considerations on events that may happen in the future.


  19. NB
    All comments above this one are prior to the 15:50 GMT update.
    Apologies for the errors, and thanks for the guidance.


  20. I thought you were acquainted with who ISDA are and who they really really represent. They may purport to be independent or balanced but that is complete nonsense.


  21. I think that they were not going to call a default until after the actual credit default swap had taken place, and I think this wriggle room is confirmed by the proviso that ISDA put at the end of their press release which basically said that the situation was dynamic and that they would consider further questions. I have the impression that once the transactions have actually taken place the default may well be called (apologies, cannot remember which website I read that on but it was a reputable one!)
    “The EMEA DC noted, however, that the situation in the Hellenic Republic is still evolving and today’s EMEA DC decisions do not affect the right or ability of market participants to submit further questions to the EMEA DC relating to the Hellenic Republic nor is it an expression of the EMEA DC’s view as to whether a Credit Event could occur at a later date, in each case, as further facts come to light.”


  22. This is clearly a delaying move, the question is: is it only a delay until the 23rd as the rumours suggest, or is it simply just putting things off as long as they can, or is it part of kicking the can down the road until ‘growth’ saves everyone? I suppose the other question is: is it all three? A ‘yes’ would only confirm what we already know; no one really knows what is going to happen, well actually they do, they just refuse to accept it; none of the major players really has a clue about how to solve the crisis, well actually they do, they just refuse to face it as it would burn both the financier and political classes; they all have one over-riding desperate need, that they personally survive whatever happens and hard cheese on anyone else.

    It is also worth remembering that Banks and Insurers are there to make money; like governments, they are not your friend, have no compassion and are ruthlessly amoral.


  23. The ISDA Determinations Committee for Europe has the following voting dealers. Bank of America / Merrill Lynch,
Barclays, BNP Paribas, Credit Suisse,
Deutsche Bank, Goldman Sachs, JPMorgan Chase Bank, N.A., Morgan Stanley
, Societe Generale, and UBS. Note that 5 of the 10 are US banks. According to US media over 90% of Credit Default Swaps (CDS) covering Greek sovereign debt have been sold by the five US banks mentioned. So is ISDA going to declare a default and commit suicide? Not on your Nellie?


  24. If I were a betting man I’d say that ISDA have already privately tested the water with the US and IF Greece hard defaults, the US will deny payouts on the CDSs claiming that they’re unenforceable or some other mouthful of slime. The reason is simple: nobody knows how much damage might be done if CDSs are called and some major US banks are in very deep doo-doo. Obama has an election coming up…and is very keen to fool the American people that things can only get better under his leadership. ho-ho.


  25. Yes, that is a distinct possiblity. I was also slightly surprised the other day when ISDA announced that it would take a decision on a credit event so soon. They may announce a further decision when the bond swaps actually happen and/or may take a further decision if/when Greece does a hard default…if not saved by the US govt by then.


  26. From greek sites at this moment…

    A severe involvement seems to be taking place this time on the eurogroup meeting. According to information from the eurozone, finance ministers looks allegedly troubled by certain aspects of the PSI, which seems to hang the whole deal. It remains to be seen whether the involvement is severe or transient.


  27. Surely the ISDA Determination Committee members can now position themselves in the markets against their predetermined 23 March outcome( whatever it is) and clean up at the expense of the counterparties.


  28. No one knows how much CDs payout will cost and whom it will affect . BUT we do know that there was a big rumour that when MF Global went down it was because they were long Greek bonds suposedly ” protected ‘ with CDS . So they lost out big time at the first Non-Default . ..counterparty for this dubious affair was ‘too-big-to-fail’ Bank of America Merrill Lynch . A level playing-field it is not .


  29. Seems to me that people have known for a long time that these derivatives/bonds/toilet paper are basically worthless. The only possible way of making good on these was by claiming on the insurance. If the insurance proves to be worthless too, surely this crap must be written down to zero on the holders’ balance sheets. This would be a good thing. What are they all up to? I have no idea but somebody does.


  30. @BT

    well this is indeed the problem. It might be the CDSs – or as you say, “some other slime”. Remember that the profits from such slime have kept the US and UK’s economies looking very pretty. They are about as sensible as printing money.

    The problem now is that the entire financial edifice – US, UK, Germany, ECB or Malta – is wholly unstable. It would only take a surprise default by (?) Mali or Greenland to take the lot out.


  31. SheepMonkeys, see Wall Street Journal blog. Although there is not the precise answer to your question there is a detailed analysis of the situation and possible outcomes/triggers which is very useful. This was the website which I referred to earlier when I said it was not expected that a default would be called yet by ISDA, so they seem to be on the ball. e.g.
    Many analysts feel Greece will not get a high enough participation rate at the debt exchange and will have to invoke CACs to push the deal through. If CACs are activated, a debt exchange may no longer be seen as “voluntary” but “coercive,” triggering the payout of CDS contracts.
    ISDA itself has in the past said that mere insertion of CACs wouldn’t generally be deemed a credit event but their use would.”

    Euro-zone governments have long feared that triggering CDS payouts could create contagion effects throughout the European banking system, similar to those caused by the 2008 global financial crisis. For that reason, officials took pains to come up with a debt restructuring plan for Greece that would be seen as voluntary.


  32. If anyone is interested in a bit more info on PSI uptake, the Athens News covers this – excerpt below from:
    “PSI takeup rate
    His European economics team at Credit Suisse has carried out an analysis of four alternative debt reduction scenarios, depending on the level of participation in the PSI bond swap. Yiorgos Zannias, the finance ministry’s chief economist, told the Athens News that the PSI offer must be made to bondholders by February 23, initiated on March 9 (when the exact level of voluntary participation will be determined) and completed by March 12, before a March 20 deadline, when 14.5 billion euros of debt repayments fall due.
    “We need at least 66 percent participation to ensure the full writedown of 107bn euros with the activation of CACs,” Zannias said
    The February 23 legislation says investors get at least 10 days to consider the transaction and create CACs, which will force all bondholders to proceed with the swap once it has won a specified level of approval.

    According to the draft law, the swap will go ahead once a 50 percent quorum of bondholders has responded to the offer and the CACs will be activated once a two-thirds majority (66 percent) of that quorum has voted in favour of the swap. “


  33. I agree. What we are seeing is, in a very real sense, an outbreak of mass hysteria – a bit like the Tanganyika laughter epidemic of 1962 but not so funny. The political and financial perpetrators in this scenario should all attend Gamblers Anonymous indefinitely. Anyone who has met and dealt with addictive behaviour, either professionally or socially, will recognise the neurotic symptoms which present here; the basic driver for addiction being denial supported by deceit.

    However, the fundamental laws of existence remain unchanged; what goes around eventually comes around. Modern technology and ‘denial ingenuity’ may have stretched the timeline, but will probably only make the outcome more painful. Too often, we forget what we already knew. FWIW, I think JW will be proved right; but, intellectually satisfying as it would be, predicting the exact chronology in this endgame is simply not possible (too many variables).


  34. Another interesting piece from that blog article:

    …a failure of the CDS to offer protection against blatant adjustments to Greece’s bond contracts could do even more damage, rendering the entire CDS market worthless and, in the eyes of investors, subject to political manipulation. That in turn could drive investors to dump the bonds of Portugal, Ireland, Italy and Spain, believing that they no longer enjoy the protection of default insurance.


  35. Dear Chris & Bankrupt Taxpayer

    Also take a look at PIMCO’s dissagreements today !! lol :


  36. SM
    Yup, but I’m getting nowhere.
    No doubt in my mind now that the part. rate is terrifying the eurocrats, but holdout is a tightly-held secret.
    Some Hedgie revenge in the offing?


  37. @SheepMonkeys:
    As I understand it, the PSI haircut will go ahead regardless. If the required %age of voluntary participants doen’t reach 75% as the official offering states (although for some odd reason some people still think it’s only 66%), then Greece will impose a CAC to force it onto them all anyway.

    The difference between the two outcomes is that if 75% say Yes, it will be voluntary and ISDA will almost certainly not trigger CDSs. If less than 75% say Yes, ISDA will be in a very difficult situation and will be faced with declaring a Greek Default or setting off other consequences.


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