Mario Monti explains the finger/dyke-hole thing

….but the bankers will simply never learn.

Seven weeks ago, Morgan Stanley casually but smugly issued a release saying the banking firm had ‘divested itself of $3.4bn of Italian debt’. This was an incredibly modest and self-effacing thing for MS to do: what actually happened was that Goldman Sachs implant Prime Minister Mario Monti personally negotiated with the Wall Street outfit for the chance pay them off upfront out of the public purse.

This event will pass most observers in the MSM by, but what it represents is the acrid taste of things to come….and why all the estimates of so-called sovereign ‘debt’ are out by a factor approaching 100. (That’s 100 times, not 100%).

This is the beginning of derivative collateral sluicing its way back into the real money system. Mario Monti paid Morgan Stanley $3.4 bn because he did a little homework on the insurance arrangements, offsets and hedges associated with the debt. They came to a sum, I’m told, in the region of $0.2 trillion – and in some cases the number would be worse.

Now Mario is a sharp guy; but are Baroin, Rajoy, van Rompuy and Barroso? Does the Pope sh*t in the woods?

Italy, with its humungous debt of $2.5 trillion, has lost more than $31 billion on its derivatives alone so far this year, according to data compiled by Bloomberg. Even if the collateralisation of the country’s total national debt was only to bite us all in the bum at a factor of ten, that means, without massive debt forgiveness or an economic miracle, the knock-on effect on world wealth – real wealth – would be a $25 trillion loss….more than the entire cost of the 2008 debacle from just one European State.

Last October, best-selling money author Christopher Whalen defined the problem with elegant simplicity:

‘Valuation is not the most important problem in finance; valuation is not the most interesting problem in finance; valuation is the only problem for finance. Once you know value, everything happens. Cash moves for value. If you do not recognize the difference, the fundamental difference between price and value, then you are doomed.’

What the eurocrats and the Fed are feeding us is the alleged ‘price’ of bailing out banks and sovereigns. The reality is that there is not enough real money in the world to pay off the derivative value of that kind of money….without printing it. What we saw the start of yesterday in Greece was printing money, but that was just to solve a problem Athens has with even the price of the debt. Dealing with the ultimate cost of the debt is beyond the real money system without knowingly creating gigainflation.

Why did the banking firms and big banks create this gigantic twilight etherea of paper wealth that now creeps towards us like Noforatu’s shadow? There are two theories: one, dumb greed; and two, a calculated choice by indebted sovereigns (especially the US) to create the sort of Weimar inflation on steroids that would inflate away their enormous debt.

I think the answer is a combo of both: the banks opened Pandora’s Box without giving a moment’s thought to the consequences, and then the Fed realised what was happening….and probably decided to use it. This may have started with Greenspan in 2004, I don’t know. But according to one Labour Shadow Cabinet member, UK Chancellor Gordon Brown had certainly grasped what was going on by 2006.

“He devoted much of a Cabinet session to briefing us on it,” the former Labour Minister (and one of the few for whom I have respect) told me eighteen months ago, “And we thought he was trying to scare us into better budgetary control. On balance now, I’d say he was being genuine.”

In theory, this would ruin every citizen on the planet below $US billionaire level. But the banking and sovereign systems would survive….according to those who think that way about stuff. As The Slog has been saying since its inception, the other approach (far more adult and less dangerous in a nuclear world) is global debt forgiveness. But Greece, we are told by Berlin, was unique: there’ll be no more of that nonsense, thank you very much.

What Goldman employees never ever think about is the geopolitical response of people having that yardbrush rammed up their economic backside. They never think about the point at which citizens snap, and storm Bastilles. They never think about the social effects of unemployment and ruination. These are the Undead who invent oxymorons like ‘jobless recovery’. The people who lost the plot years ago, and see the human race entirely in the context of its ability to consume goods and watch circuses. For them, the idea that the People come first long ago became an alien concept clung to by ‘saps’.

But at the level below them, the quants and packaging folks continue to sell whisky to the Indians, sorry, Native Americans. I’ve met this lot frequently, because by accident I drifted into financial marketing communications during the 1977-1999 period. They are more muddled and mentally adrift than any other group I’ve come across with the exception of Islamists. You tell them what the result of doing something will be. They ignore you. It happens. You remind them. They say, “No, you don’t understand….we made a small assumption in Chart 57, but we’ve ironed that out now, so everything will be fine next time”. I used to watch their backs leaving meetings, to see if I could detect the wiring beneath those dandy Brooks Brothers suits.

They will never change – and they’re still at it, even in the current environment. Yesterday, the Wall Street Journal said it had noted ‘a growing appetite for risk prompting some Wall Street banks and investment firms to show interest in buying the most complex and troubled assets tied to the bailout of American International Group Inc (AIG).’

This is precisely the same radioactive sub-prime dross that lay behind 2008. The plunging values of the securities – called collateralised debt obligations, or CDOs – caused AIG’s near collapse, and a gigantic $200 billion Federal Government rescue job. They’re going to hit us before too long anyway….but Wall Street goons are pressing the accelerator: they just can’t imagine what could possibly go wrong go wrong go wrong goaarooooovveerrrsplat.

As Oscar Wilde said of such people, “They know the price of everything and the value of nothing.” In this case, it’s literally true. He also said one other thing apposite to this era: “The only thing I can’t resist is temptation”. It’s the same with bankers.

Related: Bank of Greece engaged in unauthorised money-printing

In the FT this morning (£paywalled) there is a crackerjack article by Gillian Tett, one of the few reporters on finance who understands people rather than just balance sheets. It is a must-read.


  1. I agree with the comment about G Brown and his ‘overspend then inflate and rely on rapid growth’ policy. The usual secrecy and stealth surrounded that. In fact, where the whole thing went wrong was in the growth assumption. It was interesting to hear A Darling on the radio the other day lamenting that growth was not happening – and how it was essential to pay for the (over)spending of the past. Not the future, note, but what we have already spent. Growth is indeed required, much of the basic problem of the UK is that it is a relatively poor country trying to be a rich one. Swedish social benefits with US low tax philosphy. Brown’s social redistribution experiments (tax credits, pension tax changes, fiscal drag and all the rest) are now clear to everyone. But (as I expect he intended) he created a large underskilled dependent class that simply will not change its ways. They will have to retire on benefits then live on state pension, that’s really all we can do for them. Every week I see many people whose incomes are made up 50% of earnings and 50% of state handouts. And that’s not an extreme case, it’s an average. Brown and his secrecy were a disaster for the UK. Fine, if we want heavy socialism, let’s all vote for it then do it. But let’s get the basic economics right first and not try stealthily to anticipate national income that may never come.


  2. Global sovereign debt forgiveness is not the only technically possible solution to this madness. It is also the only one morally right.
    I did not vote for the governments that saddled me with this debt 20 years ago. My children did not vote for Labour profligacy, yet they will be saddled with it without ever having been asked. Sovereign debt is deferred taxation, and taxation without representation. The only way to right it is for all states to default on all their present debt simultaneously and never borrow again. This would convert deferred taxation into a present one, and will ensure that any given generation of voters lives within their means instead of selling my childrens’ future away.


  3. Good morning everybody.

    I have a surpise for you ( like Kinder-Surpise egg ) :

    Dont ask me what is it… read the title of the doc.. and click.



  4. It’s called “Regulators Must Get Grip On Traders’ Hormones”. (If you click the link, you get to see the report for a second or two before the paywall sign appears.)


  5. CDS clearing rules
    Gift #2



  6. Another excellent article, John! The idea that the Powers That Be would be deliberately aiming to create hyperinflation is horrifying – but, alas, not very hard to believe.

    In times such as this, anyone who doesn’t convert at least 30% of their savings to tangible, reasonably inflation-proof assets such as gold (the real, physical kind) is playing Russian Roulette with his entire future. It could (and probably will) take years before this thing explodes, and it’s at least theoretically possible that it doesn’t happen at all – but it could also happen next week. The timing of these things is always nearly impossible to predict.

    One small nitpick: It’s Nosferatu, not Noforatu. (Unless it’s some clever wordplay that goes right over my head.)


  7. It’s a parallel universe that most people are not even aware of thanks to the MSM. I think greed started it but now It’s all about those at the top table being involved in damage limitation in their own self interest, & screw everybody else. Derivative is an unlikely name for such an all threatening monster, that could possibly destroy life as we know it, a kind of man made Golem, I think. JP Morgan’s Jamie Dimon’s behaviour sums up for me how these people are going about their business, a one time very talented golden boy who seems to have lost the plot, or so it seems. This open letter I think sums up his & others behaviour & attitude. I apologise if I have already posted it, it’s powerful stuff.


  8. Yes, I stumbled across that one on a US board this morning.
    Funny isn´t it? I noted that the registration is only vacated, so that means they can resume business as soon as the greek case is settled?
    If there is any business left, that is…


  9. JW

    They say, “No, you don’t understand….we made a small assumption in Chart 57, but we’ve ironed that out now, so everything will be fine next time”.

    The problem is difficult to explain. A person who has insight usually does not know what it is like to think without it. It leaves me puzzled at times too.

    The point I want to make is that the guys you spoke with see only the bottom line, the outward facts and figures. Anything else is sheer fantasy to them. This is where the misunderstanding starts. They know from experience that the world is contained in their figures, and you know from experience that it is not. They have never experienced the uncertainties that can exist in the world we live in; they will never experience it because even that vague thought lingers in their darkest nightmares. That people like you live with its pleasant ups and downs every day is neither here nor there.

    They are the kind of people who know time is passing because a clock ticks. They have no inner experience of time whatsoever. They are the kind of people who thought that since they had records of the weather for 1933, that this weather would repeat itself in 1963 or 1973 or somesuch.

    Indeed they have little in the way of inner experience at all, backed up by a capacity to think that is strictly limited in anything but sheer penetration into the infinitessimal through dissection.

    In the above, you can see that they were entirely genuine when they said that they had “fixed it” because nothing else could happen. Think about it for a moment: to someone whose ability to imagine possibilities begins and ends with their current stream of thoughts, this is literally the case. They cannot see any other eventuality. Ergo other eventualities do not exist. When they eventually creep into their consciousness as these things have a nasty habit of doing, they have a nervous breakdown.

    Think yourself lucky, John.


  10. As an aside to this, such people who cannot see any other conclusion to their thoughts are usually pessimists. How is this so? Because usually that one conclusion is not very pleasant.

    Apply this to Greece, and you have panicking bureaucrats and politicians who are doing everything humanly possible (= whatever they did yesterday) to avoid the terrible happening they are all too scared to admit to.

    A person who can think of other possibilities has a choice. They can see the dangers, they can also see other dangers. They might, if they are lucky, see a way out that involves no danger. These people are invariably optimists. Why? Face it: what outcome would you like? A nice one or a nasty one. Case closed.


  11. “..he created a large under-skilled dependent class.”

    Yes and that was the plan all along, to produce a hardcore of faithful, lifelong Labour voters. No thought was ever given to the long term (unintended) consequences of such folly. That however is the politicians’ trademark, ‘To hell with the future what we need right now is short term popularity at any cost’.

    And now we have the aftermath, an unsustainable behemoth of social welfare slowly hemorrhaging the country to eventual Mogadishu status. To see that useless prick Cameron sucking up to the Kenyan, sorry Keynesian squatting at 1600 Pennsylvania Ave, sickens me.


  12. Maybe they saw the train crash coming 3 months ago, when they applied for de-registration? or maybe it’s just coincidence? We only have to wait until next week to find out.


  13. Its a bugger when a slog following journalist has to ring JW on the dog ‘n’ bone to ask him what’s really happening in the world. But that’s exactly what I did after spending 48 hours back in the ‘stone age’ which may soon overtake us all. A cable fault took down the tele and the Internet. Imagine, I was left with nothing but the wireless for cold comfort and they don’t even have The Goonshow or Round the Horn on these days. However, all was restored moments ago by a patient, superbly mannered gentleman called Kashif Choudry who originally hailed from Pakistan via Amsterdam, where after numerous college courses was the first Asian to have been awarded security clearance to install highly sensitive communications equipment in Holland’s police stations. He spoke despairingly of visiting the many UK homes of the welfare scroungers who enjoy electronic equipment which he admts he can’t possible afford while caring for a family by being constantly in work. But his most impressive statement came when invited my wife and I to take a seat while he patiently explained how newfangled TiVo works. “It is my duty,” to take you through it he stated sternly. DUTY? When did you last hear that word from a visiting workman. My heart sings. And by the way, brilliant stuff John. I have the pleasure of catching up on half a dozen real stories so glaringly missing from the MSM ( and BBC radio)


  14. The DMN take on it all – I’m sure the spaghettis in the street cafes are going to choke on their cappuchinos when it all finally sinks in:

    “Altogether, losses of over $ 31 billion

    Italy: Morgan Stanley bets cost billions

    In order to annul financial futures from the 90’s, Italy paid Morgan Stanley $ 3.4 billion. Amongst other things, these bets should have originally helped to reduce the financing costs of the country. But it all backfired.

    Published: 16.03.12, 11:47 | Updated: 16.03.12, 11:54 |

    In January, the U.S. bank Morgan Stanley said that it had cut its net risk in Italy by 3.4 billion euros. What Morgan Stanley did not say however, was that Italy itself had paid this entire amount to the bank, to get out of bets with interest rates. Italy wanted to annul derivative contracts that dated back to the 90s and brought losses, a source told the news agency Bloomberg. It was cheaper for the state to cancel such transactions than to renew them.

    Derivatives are highly speculative financial futures. The value of the contracts are dependent on current or future interest rates, exchange rates, equity prices or, for example, commodity price indexes. As Italy’s borrowing costs rose over the 1-billion euro mark in the mid-90s, amongst other things the country began to use interest rate swaps to reduce the cost of borrowing. But fluctuations in currencies and interest rates were also to have been reduced by the various derivative contracts (German cities and municipalities were also palmed off with such bets – more here***)

    But after 2008 the swap rates crashed. According to Bloomberg, Italy had in the mean time lost more than 31 billion dollars to current market values on its derivatives. “These losses indicate the speculative nature of these offers and the dominance of finance capital over the government,” stated Elio Lannutti, Italian senator and chairman of the consumer group Adusbef (Greece made similar experiences with Goldman Sachs – here).”

    *** “How the city of Pforzheim was taken for a fool by JP Morgan.

    It began when the city of Pforzheim made substantial losses with a financial product from Deutsche Bank. The supposed knight in shining armour, JP Morgan, has however turned out to be an even greater disaster for the finances of the city. In the end, the investment banker disappeared without a trace.”

    No great problem, it’s only about 57 million – hardly worth mentioning – and the scaleyback lawyers are already working on it. JPM wanted to buy them off with 19 million but they are not in agreement.

    And this comment –

    “Other municipalities and medium-sized enterprises are also caught up in such crude financial transactions, says Michael Strohmayer. In particular, the communities are suffering from debt and having to live with financial hardship.”

    Meanwhile, just musing on a Friday afternoon. Could what Mario is trying to cure with his digit, have been caused by Silvio and his over active widget? Just a thought!


  15. Test Result:

    You cannot post on WordPress with a GRAVATAR unless you are LOGGED IN to WordPress.

    If you do not have a WordPress account you cannot login WITH A GRAVATAR.

    WordPress have changed their rules without notice.


  16. This is the answer I got back from my contact at CME … just seems as though they are avoiding CFTC oversight on CME Europe ……
    – We have two separate clearinghouses – CME Clearing US and CME Clearing Europe.
    – CME clearing US is coming under US regulation: Dodd Frank, CFTC, et al
    – CMECE decided not to pursue DCO registration at this time. This means CMECE is has no CFTC oversight at all, just FSA oversight.
    – It does also mean, though, that US companies cannot clear on CMECE, just CME in the US


  17. Good grief!

    First of all, the ‘Greece is printing money’ effort is no secret and hasn’t been. The story was ‘broken’ in the MSM long ago:

    How secret can something be if there is an article about it in Reuters?

    Okay: take a pile of debts and add the same amount of currency, POOF! Both the debt and the currency vanish! That’s what happens when a government prints money to extinguish its debts, the debts AND the money both go away.

    Oh, the bankers don’t like that. That runs against the rules by which the bankers make easy money, it’s too easy to create currency so as to extinguish debt, too damned easy, too ‘deux ex machina’.

    How was the debt created in the first place? … (silence).

    Creating currency to extinguish debt is no different from creating the debt is in the first place! It is far easier to create €100bn in debt out of thin air with a pencil and a piece of scrap paper than it is to raise that same amount in taxes! It’s just as easy to extinguish that debt but the governments of the world are run for and by bankers who need the debt to remain for their own selfish purposes.

    Money is sanctified above all other things, as is presented by interested ‘useful idiots’ such as Chris Whalen.

    Chris: money has NO VALUE, it exists as a SUBSTITUTE for value which is destroyed by industrial activities that are enabled by money. Think I’m wrong? Sit back and watch: capital (resources = value) being destroyed for absolutely nothing in return while the residue is debt ‘assets’ in the accounts of the destroyer. What just did happen in Greece? The same thing is happening in England, France, China, Japan, USA … Germany, Korea … Saudi Arabia!

    The entire situation in Europe is beyond bizarre, where the establishment frets about the imaginary (money) to the extreme degree. At the same time … the same people … ignore the iron boot on the West’s- and its wannabe imitators’ neck: that is, the West’s energy insolvency and its ongoing de-industrialization/conservation by other means.

    C’mon, get with it!


  18. Damning remarks: “We are being played as suckers as I state once again that I would not put one red cent in any of the European sovereigns or their banks as none of their data is real; only a consistent illusion created for fools,” says Marg Grant, author of “Out of The Box and onto Wall Street” on Zero Hedge


  19. JW mentions Monti paying $3.4bn to MS. Small beer in comparison to annual UK govt interest payments. With the 2008 crisis costs covered by pushing back the pension age (more follows), and interest coming in from the punters thanks to a nice arbitrage set-up with the BoE, there is really very little here in the UK that’s not to like if you’re a bank. Maybe the housing market could be an issue, but the prospects for gouging the public teat after the NHS reforms are promising – not to mention the edifying (for them) side-effect of a rlikely eduction in useless eaters. Over at Guido’s I read that a GS Gauleiter, so it seems, is about to reshape the Layber Parteh to its liking – just in case the penny drops there that the GS status quo is meant to run at least a decades, maybe two. There will in effect be no Mogadishu here. A leech needs a host, or it is soon a dead leech.


  20. Virginia Steve
    All comments are welcomed here, but NOT personal insults. Nobody with a point to make evr had need of them.


  21. Hey, Silvio’s notta dat kinda guy! I know Milan had serious exposure to interest rate swaps, but not who the counterparty was. Just as here, local council bean-counters get to play at investing, shoulders don’t get looked over until after the proverbial has hit the fan, c.f. UK councils and Icelandic banks.


  22. Pingback: Italian Crisis: Monti Moves Swiftly to Put Digit in Derivatives Dyke

  23. @Gemz. May I put forward the proposition that the people running this circus exhibit sociopathic traits? Lack of human empathy, lack of sense of personal responsibility, over-riding ambition, ruthlessness, the law doesn’t apply to them, etc.
    Add to that a picture I saw of the trading floor; banks of flashing computer screens in a vast hall, people screaming at each other. No wonder they are divorced from reality. No wonder the world is in deep s**t.
    @Arunas. Global debt forgiveness is a noble concept, but given the sociopathic behaviours of the people in charge of the levers and switches, their view of reality does not include the concept of forgiveness.


  24. Hang on a minute! This only started yesterday, and there are thousands of emails clogging up the WordPress support system as we speak.

    That, sir, is new.


  25. @Max C

    they only exhibit sociopathic traits because they do not possess the wherewithal to understand their fellow humans, as you point out. In fact you can apply this in proportion to any person who cannot think “outside of the box” to some degree or other. In short, that means pretty well all of us.

    There are few amongst us who hold the keys to “reality” and what I know of it, you won’t find it at the bottom of an electron microscope or at the LHC (CERN). This means that pretty well every human on this planet is divorced from reality to some degree or other. Westerners more than most.

    Just one example: why drive to see your parents or children? Why not walk? It is better for you in that you get exercise. It might take a week to get there, but that is no problem, is it? Oh, you have a job to do and a contract to fulfil and you only have a weekend to get there and back? Oh, but what has that to do with “reality”? It is reality in that it is accepted social conduct. It is not reality in terms of hard natural happenings.

    The grass cows eat does not grow because there is a contract tennanting that field, or that the cows have been sold on the futures market two years previously. Reality can get very dangerous very quickly.


  26. Pingback: John Ward – Italian Crisis : Monti Moves Swiftly To Put Digit In Derivatives Dyke… – 16 March 2012 | Lucas 2012 Infos

  27. @Gemz

    The ‘people’ you talk about sound like the Eurocrats et al.. Perhaps they’re no different from the bankers. They’re all taking us into penury.


  28. If like me, “derivatives” was a world far away and utterly alien, I cannot recommend Gillian Tett’s book, “Fool’s Gold” too highly; it details their creation at JP Morgans, with benign, and thence to the corruption of their use. Easy for the layperson to follow, and as gripping as any thriller.


  29. “The only way to right it is for all states to default on all their present debt simultaneously and never borrow again.”

    This would only work if another action was taken simultaneously: a criminal law introduced which banned any future govt from borrowing. IOW force the Labour Party to raise current taxes to fund its utopian welfare dependent policies, which serve only to destroy society and to buy votes by giving away today and paying tomorrow. Without such a law, the whole government debt creation cycle would start over.


  30. But at the level below them, the quants and packaging folks continue to sell whisky to the Indians, sorry, Native Americans.

    No, your right John the proper term is Indians, at least it is in the tribe my son (a tribal biologist) works . His work involves interaction with all levels of government including trips to Washington D.C. on tribal business. He refers to his employer as Indians and is constantly corrected by the politically correct crowd. In response to their criticism he tells them he will start using the term Native American when they do.


  31. @Gemz: Reality is not always as we would like it to be and many people try to change reality for themselves and others. But the examples you give are of the reality of each of those situations. They are not abstract.


  32. @Laurence

    along with university academics, business leaders, newspaper editors, scientists and goodness knows who else.

    They are doing it because they think it is right.

    Goldman Sachs et al employ people who really understand what the world is about, know how to manipulate the “herd”, They then steer them to the cliffedge whilst they leave a while before. All in a day’s work for a big bank that can afford to salt the markets.

    There are a few people out there who know all this, but choose to share it not hide it. Usually they are top-flight marketers. They are happy to share what they know because they know how hard it is to implement.


  33. @David

    there is a big difference between a hunter-gatherer and a modern Western-educated human.

    I didn’t have children for them to perish miserably. They all know where to find food whatever the season, and keep seeds from year to year. They weren’t educated in using weaponry (as I was) because they weren’t living in Rhodesia. They have both employment of a kind, and seem satisfied with it.

    There are ways to sustain even 6 billion on this planet if we really tried. The problem is that we want the goodies without having to work for them, or learn from our mistakes. A couple of consecutive years of potato crop failures teaches you a great deal about what you can expect for your hard work.


  34. @BT

    Reality is not always as we would like it to be and many people try to change reality for themselves and others.

    Those who seek to change reality are only deluding themselves. The only way to change reality is to change your own outlook. Few know this and fewer can do it.

    You are 100% right in saying it is not abstract. It is only abstract when you start thinking about it in analytical terms. If you want reality, you must first experience it. That is immersion, complete and subjective. Remaining objective in the academic manner merely divorces you from reality. In any case, their subjectivity is relative and very weak. If you are able to understand how you feel in a given situation, immersed to your ears, so to speak, then you can begin to understand where you fit into it all. Knowing this is the path to true subjectivity.

    And out of body experiences too ;-)


  35. Title: Default by CDS Clearing Member
    Section Title: Default by CDS Clearing Member

    The Clearing House shall establish the CDS Guaranty Fund as a separate guaranty fund for CDS Contracts. Each CDS Clearing Member shall contribute to the CDS Guaranty Fund in accordance with the requirements of Rule 8H07. A non-defaulted CDS Clearing Member’s deposit to the CDS Guaranty Fund may be applied by the Clearing House in accordance with this Rule 8H802 to mitigate any loss to the Clearing House attributable to CDS Contracts and will not be applied to losses in any other product classes.

    1. Default by CDS Clearing Member
    a. If a CDS Clearing Member or its parent guarantor (i) fails to promptly discharge any obligation to the Clearing House or (ii) becomes subject to any bankruptcy, reorganization, arrangement, insolvency, moratorium, or liquidation proceedings, or other similar proceedings under U.S. federal or state bankruptcy laws or other applicable law, the Clearing House may declare such CDS Clearing Member to be in default. Upon a default, the Clearing House may, in consultation with the CDS Default Management Committee and the CDS Risk Committee, take any or all actions permitted by these Rules. The Clearing House may engage in any commercially reasonable transaction to eliminate or reduce the risk created by the default and all obligations, costs and expenses incurred thereby shall be an obligation of the defaulted CDS Clearing Member to the Clearing House.

    b. Defaults by different CDS Clearing Members will each be considered a separate default event. After a CDS Clearing Member has been declared in default, subsequent failures by such defaulted CDS Clearing Member to discharge any obligation shall be considered part of the same default and shall not be considered separate default events, unless and until the original default has been fully resolved and such CDS Clearing Member has been restored to good standing.

    c. The Clearing House in consultation with the CDS Default Management Committee shall act promptly to mitigate any loss caused by a default. The Clearing House may (i) hedge, liquidate in the ordinary course, or sell all or any portion of the portfolio of the defaulting CDS Clearing Member and its customers, if applicable and (ii) to the extent permitted by applicable law, transfer open customer positions in CDS Contracts and associated performance bond collateral with respect to any customer account class in which there is no default on payment obligations to one or more other non-defaulted CDS Clearing Members that agree to such transfer. The Clearing House may mitigate or eliminate the risks incurred by it as a result of offsetting or terminating such open CDS Contracts by any one or more of the following means: 1) replace all or a portion of the CDS Contracts of the defaulting clearing member by entering into a transaction with a solvent clearing member(s); 2) replace all or a portion of the CDS Contracts of the defaulting CDS Clearing Member by entering into CDS Contracts for its own account in the open market; and/or 3) enter into CDS Contracts (or exchange-traded contracts) to hedge the economic risks imposed on it as a result of offsetting or terminating such CDS Contracts by any commercially reasonable means. The Clearing House may also replace any CDS Contracts it enters into to replace or hedge economic risks from any terminated transaction by substituting a transaction with a solvent clearing member(s) that offsets the original terminated transaction.

    Any amount incurred by the Clearing House in liquidating, transferring and establishing, adjusting and/or replacing positions resulting from the defaulted CDS Clearing Member’s default will be deducted from the defaulting CDS Clearing Member’s collateral held by CME. In the event the collateral of the defaulting CDS Clearing Member is not sufficient to satisfy such amounts, the unsatisfied costs will be a claim by the Clearing House against the defaulting CDS Clearing Member.

    The defaulted CDS Clearing Member shall not take any action that would interfere with the ability of the Clearing House to mitigate the loss or to apply the assets of the defaulted CDS Clearing Member to offset any loss. The defaulted CDS Clearing Member shall not file any action in any court seeking to stay the actions of the Clearing House with respect to the default.

    d. A defaulted CDS Clearing Member shall immediately make up any deficiencies in its CDS Guaranty Fund deposit resulting from such default and in any event no later than the close of business on the Business Day following demand by the Clearing House.

    2. Application of Defaulted CDS Clearing Member’s Collateral and CDS Customer Collateral; Rights and Obligations of Clearing House
    Upon the default of a CDS Clearing Member, all assets of such defaulting CDS Clearing Member that are available to the Clearing House, including without limitation CDS Guaranty Fund deposits including any excess amounts, performance bond amounts for CDS Contracts including any excess amounts, any partial payment amounts or settlement variation gains in respect of CDS Contracts, membership requirements relating to CDS Contracts pursuant to 8H04.5 and any other amounts on deposit with the Clearing House for CDS Contracts but excluding amounts carried in any customer account class (collectively, the “CDS Collateral”) shall be available to the Clearing House to discharge any loss to the Clearing House associated with such default (a “CDS Loss”) in accordance with and subject to this Rule 8H802. A CDS Loss shall include, but shall not be limited to, costs associated with the liquidation, transfer and managing of CDS Contracts of the defaulted CDS Clearing Member, hedging costs and other costs incurred by the Clearing House related to managing the risk surrounding the default of the CDS Clearing Member.
    A CDS Loss arising in the defaulted CDS Clearing Member’s proprietary account class shall be satisfied from the CDS Collateral. A CDS Loss arising in the defaulted CDS Clearing Member’s customer account class shall be satisfied by application of performance bond, excess performance bond and settlement variation gains (collectively, the “CDS Customer Collateral”) held in the customer account class in which the CDS Loss is generated and by any excess CDS Collateral remaining after finalizing the CDS Loss of the defaulted CDS Clearing Member’s proprietary account as set forth below.
    During the clearing cycle in which the default occurs and any subsequent clearing cycles in which the Clearing House is managing and/or liquidating open positions in respect of the defaulted CDS Clearing Member, the Clearing House shall satisfy any settlement variation payment obligations related to CDS Contracts owed by the defaulted CDS Clearing Member to the Clearing House, or other realized losses of or expenses to the Clearing House with respect to the default, only from the CDS Collateral, CDS Customer Collateral (with respect to customer positions only) or other assets allocated to CDS Contracts unless and until assets from other product classes become available pursuant to the Rules governing default management for such other product classes.
    After finalizing the CDS Loss of the defaulted CDS Clearing Member’s proprietary account and application of the CDS Collateral to satisfy such CDS Loss, the Clearing House shall reserve any excess CDS Collateral that remains first, to satisfy any CDS Loss arising in the defaulted CDS Clearing Member’s customer account class for CDS Contracts, and second, to satisfy any losses to the Clearing House from such CDS Clearing Member with respect to other product classes, including, but not limited to, pursuant to Rule 818; provided, however, that such excess CDS Collateral shall not be applied to a CDS Loss arising in the defaulted CDS Clearing Member’s customer account class until after application of CDS Customer Collateral held in such customer account class.
    Any gains or excess performance bond amounts or other collateral within the defaulted CDS Clearing Member’s customer account class following final resolution of the defaulted CDS Clearing Member’s CDS Loss in such customer account class shall remain in such customer account class, where it may be used to satisfy losses to the Clearing House arising in such customer account class with respect to other product classes, including, but not limited to, pursuant to Rule 818. Such assets shall not be added to the defaulted CDS Clearing Member’s CDS Collateral generally. For the avoidance of doubt, as set forth in 8H802.G, the Clearing House shall not use performance bond amounts or other collateral in any customer account class of the defaulted CDS Clearing Member to satisfy a payment obligation to the Clearing House in respect of the defaulted CDS Clearing Member’s proprietary account.
    Should a CDS Loss continue to exist after application of the amounts set forth above, any remaining deficiency shall be satisfied pursuant to the procedures in Rule 8H802.B. Any such amount shall continue to be a liability of the defaulted CDS Clearing Member to the Clearing House, which the Clearing House may collect from any other assets of such clearing member or by process of law.



  36. We had the second best level of economic growth growth among the G8 countries ( after the US) from 97-2007. Weve had the lowest after Italy since 2010.
    “..he created a large under-skilled dependent class.”
    “Yes and that was the plan all along, to produce a hardcore of faithful, lifelong Labour voters.”
    That looks more like Thatchers plan, recently rediscovered by osbourne.


  37. maybe you are complicating it….is it not that they are paid on the basis of paper transactions and not on the basis or real profits? They dont have any incentive to factor in the realism no matter irrespective of probabilities



  39. Pingback: John Ward – Merkel’s Euro-Tour Was To Sound Out Top Pols On Schauble As New Ezone Group Head – 17 March 2012 | Lucas 2012 Infos

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