Comments on: Europe’s half-baked deal http://blogs.reuters.com/felix-salmon/2011/10/27/europes-half-baked-deal/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: dWj http://blogs.reuters.com/felix-salmon/2011/10/27/europes-half-baked-deal/comment-page-1/#comment-32474 Fri, 28 Oct 2011 03:01:36 +0000 http://blogs.reuters.com/felix-salmon/?p=10758#comment-32474 They should borrow the $750 billion from French banks. This would reduce the transfers involved, not to mention the ultimate counterparty risk.

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By: Auros http://blogs.reuters.com/felix-salmon/2011/10/27/europes-half-baked-deal/comment-page-1/#comment-32452 Thu, 27 Oct 2011 21:19:09 +0000 http://blogs.reuters.com/felix-salmon/?p=10758#comment-32452 The idea of the Fed being broke is kinda laughable. As long as they’re willing to tolerate somewhat higher inflation (which arguably would be a good thing — www.interfluidity.com/v2/2347.html ), the Fed can have as many dollars as it damn well pleases.

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By: johnhhaskell http://blogs.reuters.com/felix-salmon/2011/10/27/europes-half-baked-deal/comment-page-1/#comment-32450 Thu, 27 Oct 2011 19:52:28 +0000 http://blogs.reuters.com/felix-salmon/?p=10758#comment-32450 Fbreughel1: Felix’s comments about how difficult the ECB found it to buy Spanish and Italian debt are 100% correct. Also, the Fed is not broke. It actually has plenty of dollars. Try to pay attention.

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By: alea http://blogs.reuters.com/felix-salmon/2011/10/27/europes-half-baked-deal/comment-page-1/#comment-32442 Thu, 27 Oct 2011 17:38:09 +0000 http://blogs.reuters.com/felix-salmon/?p=10758#comment-32442 @KidDynamite:
Yes, AIG had a massive NET exposure, non-collateralized (until the downgrade) and was THE only market for certain types of CDS.
The EU situation has nothing to do with that, the NET is very small (vs total bonds outstanding), collateralized and (relatively) liquid.

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By: KidDynamite http://blogs.reuters.com/felix-salmon/2011/10/27/europes-half-baked-deal/comment-page-1/#comment-32439 Thu, 27 Oct 2011 17:27:47 +0000 http://blogs.reuters.com/felix-salmon/?p=10758#comment-32439 @Alea – thanks for the other reply. I think that one problem us non-CDS experts have here is that we think of AIG 2008 – and the problems arising there – but this Euro situation is very much NOT like that, right? In other words, with AIG, the NET exposures were massive – the banks all bought protection, and AIG sold it to them…

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By: KidDynamite http://blogs.reuters.com/felix-salmon/2011/10/27/europes-half-baked-deal/comment-page-1/#comment-32438 Thu, 27 Oct 2011 17:25:53 +0000 http://blogs.reuters.com/felix-salmon/?p=10758#comment-32438 @Alea – let me ask you a simpler question: if the NET CDS exposure is under $4B, then that implies that the current market setup was NOT a lot of parties who bought and hedged (with CDS) Greek debt, right?

and the next step is to conclude (which I think is your point), that this voluntary exchange not triggering a CDS credit event is not a big deal and is being blown out of proportion in a big way.

am I on the right track now?

thanks in advance…

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By: alea http://blogs.reuters.com/felix-salmon/2011/10/27/europes-half-baked-deal/comment-page-1/#comment-32437 Thu, 27 Oct 2011 17:22:39 +0000 http://blogs.reuters.com/felix-salmon/?p=10758#comment-32437 Gross positions irrelevant. Read this:
“Net notional positions generally represent the maximum possible net funds transfers between net sellers of protection and net buyers of protection that could be required upon the occurrence of a credit event relating to particular reference entities.” http://www.dtcc.com/downloads/products/d erivserv/tiw_data_explanation.pdf

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By: KidDynamite http://blogs.reuters.com/felix-salmon/2011/10/27/europes-half-baked-deal/comment-page-1/#comment-32436 Thu, 27 Oct 2011 17:15:48 +0000 http://blogs.reuters.com/felix-salmon/?p=10758#comment-32436 @Alea – I saw that $3.7B number… but the gross number is $75B. Something is hurting my brain thinking about how we can’t just ignore that here when thinking about incentives of the parties involved. ???

and yes, I did read this:

http://ftalphaville.ft.com/blog/2011/10/ 27/713826/how-gross-and-net-cds-notional s-really-work/

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By: alea http://blogs.reuters.com/felix-salmon/2011/10/27/europes-half-baked-deal/comment-page-1/#comment-32432 Thu, 27 Oct 2011 17:00:16 +0000 http://blogs.reuters.com/felix-salmon/?p=10758#comment-32432 @KidDynamite:
The CDS position is not significant, the net notional is only $3.7 bln and even if 100% of that is covered by bonds (unlikely) and they don’t participate in the restructuring it doesn’t matter (we are talking €205 bln float for the restructuring). But as far as the CDS is concerned, Greece has not defaulted yet, and no restructuring has occurred yet, it will take months before the restructuring is effective and since it’s not mandatory, it won’t be a credit event.

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By: FBreughel1 http://blogs.reuters.com/felix-salmon/2011/10/27/europes-half-baked-deal/comment-page-1/#comment-32431 Thu, 27 Oct 2011 16:55:43 +0000 http://blogs.reuters.com/felix-salmon/?p=10758#comment-32431 “One place the money’s not coming from is the ECB, which found it hard enough just to keep on buying bonds from Spain and Italy”

Euuh, Felix, you do know this the ECB represents the largest economy on earth, do you ? This is not the Fed (which is quite broke).

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