On Sunday we talked about the Greek Issue and talked about how the ISDA, the International Swaps and Derivatives Association Inc, are the people who determine whether a credit event is a default or not.
We also mentioned that the ISDA is heavily influenced (if not largely controlled by) the very big 5 US banks who hold 97% of the credit default swaps that would have to pay out if the Greek Issue is determined to be a default.
Now there are those who believe you will never see the ISDA declare the bondholder 'haircut' a default because it could potentially ruin the very members who play such a large part in the ISDA and the derivatives market.
It seems we will now get a chance to see if that is true.
Today the ISDA announced that a meeting will be held at 11am GMT on Thursday, March 1 to determine whether a credit event has occurred.
Will the big 5 US Banks be forced to pay out on their derivative insurance?
Or will major European Banks and Hedge Funds be left holding the bag with their 'insurance' rendered useless - thereby triggering another Lehman/MF Global moment in a few months?
Someone I don't think it will come as any great surprise that the ISDA will announce that the recent Greek solution was a voluntary agreement and 'by the books', thereby avoiding a CDS trigger.
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What are the possible recourse actions? Are there any?
ReplyDeleteAt this point, I am not 100% sure, I am looking into it.
ReplyDeleteI don't believe there is an avenue for recourse but I suspect that any litigation that does result from the decision will be tied up in the courts for years - if not decades.
When the ISDA meets this Thurday its members will begin deciding on what to consider the "credit event" that is the Greece sovereign debt default.
ReplyDeleteThe decision could in fact trigger the CDS swaps that were taken out as insurance by the bond owners to protect them against the event of a bond default.
So how can the ISDA come to any decision other than that this was a default? We will have to wait and see!
Another article at The Political Commentator here: http://bit.ly/Ai7ERs
When the ISDA meets this Thurday its members will begin deciding on what to consider the "credit event" that is the Greece sovereign debt default.
ReplyDeleteThe decision could in fact trigger the CDS swaps that were taken out as insurance by the bond owners to protect them against the event of a bond default.
So how can the ISDA come to any decision other than that this was a default? We will have to wait and see!
Another article at The Political Commentator here: http://bit.ly/Ai7ERs