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  1. #1
    Darkside Medic Senior Member rory_20_uk's Avatar
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    Default Re: The continuing battle against the inevitable Euro area default

    Use of CDS contracts are a good way of (on paper at least) reducing one's exposure to losses on bonds - German banks have massively reduced their exposure to greece in this way without the need to sell Greek bonds.
    But who backs the CDS? Probably the very same banks that are utilising them to reduce their exposure... not something that is going to help stabilise the whole situation. And this is even leaving the whole facet that by careful reviews of the small print the clauses can be avoided.

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    Throne Room Caliph Senior Member phonicsmonkey's Avatar
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    Default Re: The continuing battle against the inevitable Euro area default

    Quote Originally Posted by rory_20_uk View Post
    who backs the CDS?
    Other banks who do not hold the underlying debt, sometimes the same banks that hold the underlying debt (because they earn a trading commission from writing the contracts) but largely those who are 'short' CDS (ie. in the position of the insurers) are speculators in the shadow banking system: hedge funds and SPVs owned by banks and insurance companies (like AIG who wrote many of the CDS on the sub-prime mortgages).

    The CDS market is only lightly regulated and while there are some entities which track CDS volume (like the DTCC), not all speculators in CDS report their trades in this way so it's pretty opaque as to the exposure levels.

    The DTCC tables I linked to show the gross notional USD value of outstanding CDS on (eg) Italian debt to be 312bn, with the net amount 21bn. This is compared to 2.2trn of outstanding Italian government debt. So my statement above was hyperbolic, I apologise - there will not be many multiples more losses as a result of CDS contracts, but in the event of default the losses will exceed the value of the outstanding debt and it is unclear by how much.
    Last edited by phonicsmonkey; 11-23-2011 at 10:02.
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    Clan Clan InsaneApache's Avatar
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    Default Re: The continuing battle against the inevitable Euro area default

    Germany fails to flog it's bonds.

    http://blogs.wsj.com/economics/2011/...own-in-europe/

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    Iron Fist Senior Member Husar's Avatar
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    Default Re: The continuing battle against the inevitable Euro area default

    Quote Originally Posted by InsaneApache View Post
    Germany fails to flog it's bonds.

    http://blogs.wsj.com/economics/2011/...own-in-europe/

    Blimey.
    Indeed, about time to get Eurobonds so we can help everybody spend more with our good reputation.


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    Throne Room Caliph Senior Member phonicsmonkey's Avatar
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    Default Re: The continuing battle against the inevitable Euro area default

    The failed Bund auction is a big deal. It means the problems are coming home to roost at the core of the euro zone whereas before they could be dismissed as issues at the periphery. In my view it indicates the the Germans must soon drop their objection to the ECB taking action to underwrite the debt of the troubled eurozone countries.

    In fact the ECB is, this Friday and for the first time since 2008, re-opening its long term repo facility to enable financial institutions to secure financing against dodgy collateral. This time it's for 13 months and is effectively unlimited in size, so expect to see them finance around 1trn of bank debt versus sovereign bond collateral.
    Last edited by phonicsmonkey; 11-24-2011 at 23:25.
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    BrownWings: AirViceMarshall Senior Member Furunculus's Avatar
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    Default Re: The continuing battle against the inevitable Euro area default

    warner on the end of days:

    http://www.telegraph.co.uk/finance/c...pproaches.html

    from the article:

    "From the UK Treasury on Whitehall to the architectural monstrosity of the Bundesbank in Frankfurt, everyone is desperately trying to figure out precisely how bad the consequences might be."

    I imagine that deep within the bowels of the Bundesbank they are very discreetly firing up the dusty printing machines labelled "DM" in preparation for the eurocalypse.

    "In its current form, the single currency may always have been doomed, but it has been greatly helped on its way by an extraordinarily inept series of policy errors."

    No, not "may" have been doomed, it was always destined to be doomed. This is a Headless Sovereign crisis because the combined polities are so diverse that no mandate for action can be sought and receive a majority, which means that policy action must remain unaccountable, and rips any shred of legitimacy from the project.

    Had the eurozone been limited to Germany, Austria, the Benelux countries and Finland, the euro currency "may" have stood a chance as that lack of representation and accountability would not have been quite so insurmountable.

    That of course did not happen
    Last edited by Furunculus; 11-25-2011 at 17:28.
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    Voluntary Suspension Voluntary Suspension Philippus Flavius Homovallumus's Avatar
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    Default Re: The continuing battle against the inevitable Euro area default

    Quote Originally Posted by Gelatinous Cube View Post
    Come back to the fold, Europe.. The Marshall Plan 2.0 beckons.
    How yuh gonna pay for it this time? Don't forget, it took almost 70 years for the UK to repay the last one.
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    Enlightened Despot Member Vladimir's Avatar
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    Quote Originally Posted by Gelatinous Cube View Post
    Come back to the fold, Europe.. The Marshall Plan 2.0 beckons.
    Ahh, sorry. In less they all get upity again and we have put them in their place, again, that aint happening.


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    Default Re: The continuing battle against the inevitable Euro area default

    Quote Originally Posted by phonicsmonkey View Post
    The DTCC tables I linked to show the gross notional USD value of outstanding CDS on (eg) Italian debt to be 312bn, with the net amount 21bn. This is compared to 2.2trn of outstanding Italian government debt.
    Hah, that's nothing! Just look at the outstanding Dutch debt. 3.4trn, according to that site anyway. No, I am not making this up: if that site is to be believed the outstanding Dutch debt multiplied a thousandfold over the years 2005 and 2006 ...
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    Throne Room Caliph Senior Member phonicsmonkey's Avatar
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    Default Re: The continuing battle against the inevitable Euro area default

    Well that does look extremely odd and the chart doesn't match the data table below either for the Netherlands. The Italian figure of 2.2trn is correct though, I have seen it cited elsewhere.
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  11. #11

    Default Re: The continuing battle against the inevitable Euro area default

    I have a bag of old European currency from before most of western Europe switched to the Euro, should I hold onto it?


  12. #12
    Clan Clan InsaneApache's Avatar
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    Default Re: The continuing battle against the inevitable Euro area default

    Quote Originally Posted by a completely inoffensive name View Post
    I have a bag of old European currency from before most of western Europe switched to the Euro, should I hold onto it?
    I should imagine that in order to combat tax evasion. No. There will be 'new' Drachmas, 'new' Liras, 'new' Escudos etc. etc.

    Shame really 'cos so have I.
    There are times I wish they’d just ban everything- baccy and beer, burgers and bangers, and all the rest- once and for all. Instead, they creep forward one apparently tiny step at a time. It’s like being executed with a bacon slicer.

    “Politics is the art of looking for trouble, finding it whether it exists or not, diagnosing it incorrectly, and applying the wrong remedy.”

    To learn who rules over you, simply find out who you are not allowed to criticise.

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  13. #13
    Senior Member Senior Member gaelic cowboy's Avatar
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    Default Re: The continuing battle against the inevitable Euro area default

    Quote Originally Posted by InsaneApache View Post
    I should imagine that in order to combat tax evasion. No. There will be 'new' Drachmas, 'new' Liras, 'new' Escudos etc. etc.

    Shame really 'cos so have I.
    There still legal tender all you have to do is bring the to the local central bank of whatever country and they exchange them for Euro.
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