Thursday, Feb 25, 2010
Time to rein in the "Investment" Banks or let UK be next
NYT: Banks Bet Greece Defaults on Debt They Helped Hide
Bets by some of the same banks that helped Greece shroud its mounting debts may actually now be pushing the nation closer to the brink of financial ruin.
Posted by mken @ 04:08 PM (659 views) Add Comment
11 Comments
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1. charlie brooker said...
I'm sure the lawyers on this site will know - is this a case of profitting from negligence, misfeasance or some other 'unce' sounding word?
2. timmy t said...
There aren't words to describe these parasites. This activity should be illegal. We (they) have become so obssessed with making money that they would happily sit back a watch a country be ruined so they can make a few quid. I seriously think it is only a matter of time before riots start.
3. cat and canary said...
or as in Athens.... "The escalating dispute came as a general strike in Greece spilled over into violent clashes between hooded youths and riot police in Athens. Chants of "burn the banks" are a foretaste of tensions once austerity measures bite in earnest later this year." (Telegraph)
4. drewster said...
I don't understand the mechanism by which this works? If I go down to Ladbrokes and bet on Chelsea winning the FA Cup, that doesn't have any effect on the game. Even if I bet a millions of pounds on the match, it still won't affect the outcome.
Can someone explain how betting on a Greek default is different?
5. 51ck-6-51x said...
The existence of a CDS market on a debt does not lead the debt market itself HOWEVER it increases market transparency and can, therefore, lead to a quicker turn in sentiment than previously, and therefore may help the underlying debt market to overshoot until the market becomes more used to the new speed. When the debtor in question is that of the last resort this could end up being ugly.
As far as "fire insurance on your neighbours house" goes, this seems like a good analogy on the surface, but these are two sided contracts - if it means enough to them, the insurance company would start guarding the house to make sure you did not commit arson (there would ensue a battle in the bond markets to both demise & bolster the debtor). I wonder if I could bet with Ladbrokes or William hill on your house burning down, I probably could.
6. 51ck-6-51x said...
Drewster,
What is being suggested is that some set of speculators buy insurance on Hellenic debt, and then start selling the debt like mad, causing a panic, pushing up yields and therefore making it harder for the republic to roll over or aquire new funds at an affordable rate, therefore making them more likely to default. It's a pretty high risk strategy if you ask me - but that does not mean it is not being pursued. If it is though, I would imagine that the speculators would cash in when the price of their CDSs increase (reflecting the increased percieved risk of default) rather than actually going for the default itself and having to wait for year (or decades) for their payout (and risking not getting it at all!). However even if this strategy is being pursued it would have a detrimental effect on the debtor. That is why "buying fire insurance on your neighbours house" is a better analogy that "betting on Chelsea winning the F.A. cup".
7. drewster said...
666,
Wouldn't the gamblers need to be in possession of a vast amount of Greek bonds to begin with, in order for that strategy to work?
8. 51ck-6-51x said...
Drewster, Yes they would need enough to sell to trigger others to start selling due to the increased percieved risk. I really don't think this is happening, at least not on much of a scale - the fact that Greece has been issuing so frantically into a deteriorating market is probably enough itself.
9. debtfree said...
@4
If everyone started putting lots if money on a team to win the price would shorten at the bookies.
In the Greece example the banks are shorting the Market with heavy volumes, dragging the price or value down.
I think that's how it might work.
10. 51ck-6-51x said...
Debtfree - that does not affect the actual outcome of the match though. Read my posts :) Gotta go now, I'll look at this thread tomorrow.
11. debtfree said...
@10
will do, I jumped the gun at 4 and tried to answer before reading your posts.
I'd like to know more as well so thanks :-)