The 2nd amendment – European Style

If you don’t know what a CDS is or who is running the ISDA, you are probably vested (or somewhat vested) in the stock market. Although the media is not giving a real analysis of what happened concerning the Greek bailout, the following excerpt gives a realistic assessment without holding back.

There is a reason that gold is up over $100/oz in the past 48 hours and it has nothing to do with an economic recovery or a Greek bailout.

David DeGerolamo

The Banks Have Volunteered (at Gunpoint) To Get 50% of Their Money Taken – No Credit Event??

So, the European joke has come full circle. Indebted nations borrow more money to bail out other indebted nations who ask insolvent banks to cut a 50% off deal on the loans that were given to them, but the insolvent banks will then have to raise capital which the will of course borrow from the over-indebted nations whom they just gave money to. Get it? Problem solved – BTMFD!!!

The rally is based off of bullshit and an inability to count. After the voluntary haircut (volunteered at gunpoint, may I add), Greece will still have roughly 120% debt to GDP ratio with a declining economy. Unsustainable still. I would fade this rally with careful stops.

I have went over the Greek debt tragedy in detail with subscribers and things are unfolding exactly as I had anticipated. Before we get to the Greek default rehash, let’s peruse an email I received from one of my many astute BoomBustBloggers.

I’m a lawyer (and investor). There is no analysis by anyone on the internet about whether the announcement last night would in fact trigger CDS payout. Rather, everyone seems to be accepting the claim by ISDA that the decision would not trigger it. Because I can’t find any legal analysis worth reading on the internet I decided to do my own research. In about 5 minutes I found a case in the 2nd Circuit (USA) that explained to me what’s going on with those contracts. First of all, they are unregulated private contracts between private parties. In order to know whether a trigger occurred you have to read each individual contract. As a result, what the ISDA says about whether a trigger occurred as to private contracts that are out there is totally meaningless.

There is merit to this assertion since the ISDA contract is simply a non-binding template, often marked up to accomodate financial engineering widgets designed to increase profit margin and decrease transparency to clients and counterparties. By the time all of the widgets are installed on some of these highly customized deals, the original ISDA template is a non-issue.


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