Greek Debt Swap: Not exactly a solution
Friday, March 9, 2012 at 10:52PM
Silver Prices

The Greek Debt Swap according to Reuters:

Greece triggered the payment on default insurance contracts by using legislation that forces losses on all private creditors, the International Swaps and Derivatives Association said on Friday.

The decision by the EMEA Determinations Committee to declare a so-called credit event was unanimous, ISDA said in a statement.

Markets showed little reaction to the widely expected decision. The euro edged lower against the U.S. dollar while U.S. Treasury prices saw losses pared after the ISDA announcement.

The ISDA said the use of "collective action clauses (CACs) to amend the terms of Greek law governed bonds issued by The Hellenic Republic such that the right of all holders of the Affected Bonds to receive payments has been reduced."

The "credit event" ruling means a maximum of $3.16 billion US of net outstanding Greek credit default swap contracts could be paid out, though the actual amount is likely to be lower because bondholders are not losing all of their original investment.

ISDA said the auction will be held to determining the actual payout amounts on March 19.

Greece said it would use the newly passed legislation that included the CACs to force private creditors into a bond swap.

This follows creditors' voluntary tendering of 85.8 percent of the 177 billion euros ($232.22 billion US) in bonds regulated by Greek law. The use of CACs should boost participation to an estimated 95.7 percent.

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Now across to Jim Sinclair for his view which arrived in a missive this morning:

Dear Friends,  

Today legendary trader and investor Jim Sinclair told King World News the "credit event" in Greece totals much more than the $3.5 billion which is being reported by the mainstream media.  Sinclair also said if the CDS's are in fact made to pay, this could require the rescuing of eight international banks, through Fed swaps that could total in the trillions of dollars.  Here is what Sinclair had to say about what is happening :  "The release made by the International Swaps & Derivatives Association (ISDA), for the average Mensa member or genius, is totally incomprehensible.  The press is using the word default, but the ISDA is using the word 'auction.'  Clearly, the amount of CDS's outstanding is infinitely more than the $3.5 billion that is being quoted."

Jim Sinclair continues:

"The BIS confirms, in the area of CDS's the total outstanding is approximately $37 trillion.  So I believe the reports being given about this just being a small and modest market event is false.  As a market observer and having more than 50 years in the business, the real number is at least 50% or more of the existing $37 trillion that is related to Greece.

The $3.5 billion figure being quoted in the press could easily be the reporting to the US Comptroller of the Currency.  For example, a foreign, non-consolidated subsidiary of a US bank, operating out of London, reports the size and kind of the over the counter derivatives to the BIS, not the Comptroller of the US.....

Please click here to read the rest of the interview as it appears on King World News.

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