Comments on: Why it’s silly to blame CDS for Greece’s woes

By: DavidMerkel

DavidMerkel — Thu, 11 Mar 2010 05:03:01 +0000

Made a lot of money back in 2002 on the Lula scare, buying the bonds of non-Brazilian companies that had Brazilian operations, that would not fail even if the Brazilian ops were expropriated. FleetBoston/Santander gapped out, we bought as much as we could, and spreads crashed in quickly after the election.

Would we have made more buying the Brazil government bonds? Yes, much, much more. But the downside of a default was too much to consider — we preferred a safer strategy where we would win with much higher probability.

By: DanHess

DanHess — Tue, 09 Mar 2010 20:24:20 +0000

Salmon’s reporting on Greek CDSs has been mediocre at best, and we should expect more for someone of his caliber. He has provided thorough and rich analysis of the market behavior of CDSs; for this there is hardly anyone better. But as for a look ‘under-the-hood’? Nada.

What about counterparties? Nothing. Who are they? Zilch. Are they good for it, and is there anyone backstopping them if they can’t pay? (A cricket chirps softly in the background.)

By: KidDynamite

KidDynamite — Tue, 09 Mar 2010 12:59:54 +0000

csissoko: absolutely. we are all ponzi schemes. the good news (kinda) is that most sovereigns can print their way out of they problems when the pyramid collapses. Greece, as part of the EU, cannot.

By: rajivsethi

rajivsethi — Mon, 08 Mar 2010 21:21:59 +0000

Felix, you might be right about Greece, but your claim that countries “have essentially no limit on how much they can tax or cut spending in order to make their debt repayments” cannot be correct in general. While governments can change expenditure policies and tax rates, they do not have direct control over revenues or actual expenditures, which will depend on the level of economic activity. If attempts to raise revenues are too contractionary, the deficit may increase rather than decrease in the near term. There is also political viability to consider: a government has to stay in power if it is to do anything at all.

By: HBC

HBC — Mon, 08 Mar 2010 20:04:50 +0000

Equilibrium error creeps into the baseline premise the moment you start comparing countries and companies without sufficiently contrasting basic nature and interests of these two entirely different species.

In contemporary terms, one will ruin the other without compunction. The other one’s a country.

Too bad it doesn’t function as often in reverse.

If Brazil’s the model of positive outcomes, things have indeed come to a sorry state. Ask millions of unhappy Brazilians how it feels to inhabit a slave colony working to pay off sovereign IOUs, in a permanent state of Lent. It’s a blooming disaster.

Come in, Fotherington-Thomas. Let’s hear you say, “Thanks, WTO! Thanks, retinue of speculators!” in Portuguese. How about in Greek? Russian? Creole? The list, which by the way includes English, goes on…

And please, let’s not quibble about speculators being called “evil” – in various impacted nations throughout the world, white-collar weasels who give speculation a bad name “just following bankers’ orders” are more likely to be seen as as agents of The Apocalypse. Evil is as evil does, after all.

Maybe, just maybe, there’s a sovereign in the world who’ll stand up and stop the rot. Doesn’t look like it’s gonna be the United States, though, does it?

By: csissoko

csissoko — Mon, 08 Mar 2010 18:03:17 +0000

KD:

You’re missing Sethi’s point. Almost any heavily indebted company/nation will blow up in a matter of years, if they start having to pay 30% interest rates — because there’s no way for a company or nation to grow out of that kind of debt.

Do you really mean to say that we’re all ponzi schemes?

By: KidDynamite

KidDynamite — Mon, 08 Mar 2010 16:19:22 +0000

also, Felix, any company/nation that will blow up if it’s unable to roll its debt is not a viable entity at all – it’s a ponzi scheme.