If you go into the 2nd stage of the auction, looking to buy, you give a price at which you would be happy owning the DO. But which one do you get? Even within the maturity buckets, there are multiple bonds with varying fundamentals.

This goes for people like Jesse Eissenger, Gretchen Morgensen and the FED-bashers at Bloomberg. If these people were random commentators mouthing off – like me and presumably you – then who cares but the media deliberately making incorrect statements does have a real world impact.

http://www.bidus.eu/greece-problems-asse rtion-on-psi-says-e172-billion-of-bonds- tendered-in-swap-will-enact-cacs-isda-to -meet-up-with-at-1pm-to-uncover-if-cds-c ause

To actually pay the debts, Greece has to pay out more (to bondholders) than it takes in from bailouts. That’s not going to happen, and anything else is just more “extend and pretend”.

the solution to the problem has been and continues to be greater than a small-minded thirst for fiscal armageddon

and the resilience of the euro even more

By setting the March 19 date for the auction, ISDA has been saved solely by the tiny, untendered remnant of the foreign-law bonds which will be both “Deliverable” and yield the correct economic result when delivered.

Only untendered bonds can be delivered because anything tendered is frozen in Euroclear and cannot be transferred until completion of the exchange.

As to the fruits of the exchange,it seems to me that only the EUR 315 of bonds is actually Deliverable (in the ISDA sense); the GDP warrants aren’t Bond or Loans and the EFSF bonds are not Obligations of the Reference Entity.

But “Deliverable” (in the ISDA sense) doesn’t mean that delivery gives the right economic result. One would still be left with the problem you’ve been pointing out for the last weeks: the CDS payout is based on the post-writedown face.

However, by pure happenstance, there will be some number of untendered foreign-law bonds which will inevitably (but have not yet at auction settlement) turned into pumpkins. And that’s the only reason that the CDS “work”.

It’s better to be lucky than good.

the fact that greece is successfully moving through the stages of restructuring its debt has annoyed commentators looking for a fiscal armageddon

and you are correct in asking whether the CDS is a worthwhile hedging instrument

The not-so-sweet smell of odious debt
A proposal that declares obligations of a particular regime non-transferable frees innocent people from indenture not of their making http://timharford.com/2012/03/the-not-so -sweet-smell-of-odious-debt/comment-page -1/#comment-4559

Your claim as to what happened in AIG again is a misrepresentation. The CDSes did not “pay out”, there were no defaults – to the best of my knowledge, certainly not a significant number. Rather AIG had to keep pumping out cash as collateral at the same time the brain donors in the treasury dept of AIG decided to earn a few extra bips investing in illiquid mortgage backed bonds. It didn’t “unwind” the CDSes at the bottom of the market, it simply swapped the CDSes for the underlyings and cash collateral. On what basis do you claim that the counterparties would not have got everything they were owed? Especially given that those assets turned a not insignificant profit, even after the “enormous cost”.

You know this, people have pointed out to you repeatedly. Why do you keep parroting these lies?

Also please do us a favour and buy a finance for dummies books that explains the difference between sov and corp debt.

http://www.ft.com/intl/cms/s/0/32c2fca8- 4b64-11e1-b980-00144feabdc0.html

since Germans are in the drivers seat when the troika meets, they can always tell the Greeks that if they don’t put the Kommissar in place, Greece won’t get the next tranche of the bail out money already promised to them.

I’d love to be proven wrong, but I’m not seeing how Greece can get out of this without leaving the Eurozone and I’m also not seeing Greeks staging a revolution.