Felix Salmon

Adventures in CDS reporting, GM edition

February 28, 2011

GM debt has been through a lot of late. In May 2009, car czar Steve Rattner made a bold and unexpected decision to nationalize the company rather than leave it with debt outstanding. That decision was followed by a CDS auction which valued GM’s defaulted debt at just 12.5 cents on the dollar — a valuation unthinkably low just a couple of years earlier. Clearly, when it comes to automaker debt, there’s a lot of uncertainty and volatility — and where there’s debt with uncertainty and volatility, there’s sure to be CDS trading.

Treasury’s astonishing statement on US default

January 22, 2011

Four years ago, I started pushing back against the idea that whenever the government fails to make good on some obligation or other, that’s exactly the same thing as a bond default. Of course it isn’t: bond payments are a very special form of government obligation, involving specific sums of money to be paid in a specific manner on specific days. If you fail to make such payments, you’re in default. If a government takes money from, say, the military-salaries pot and uses it to make its bond payments, then that’s a drastic way of avoiding default. It’s a broken promise, to the servicemembers in question. But it’s not a default.

James Macdonald on US sovereign default

January 17, 2011

After I blogged Greg Ip’s post on the dangers of a US debt default if the debt ceiling isn’t raised, it became clear that we were very much lacking an expert take on the matter. So I asked James Macdonald, author of my favorite book about sovereign debt, if he might weigh in. Here’s what he replied:

The US won’t default, even if the debt ceiling stays

January 13, 2011

Greg Ip makes a very important point today, which I haven’t seen made anywhere else*: even if the US debt ceiling isn’t lifted, that doesn’t mean the government will default.

Sovereign default watch, Ivory Coast edition

January 4, 2011

My headline in April 2010, less than eight months ago, said “Ivory Coast’s bond exchange gets it exactly right”. Clearly, I spoke too soon: it seems that they should have simply held off until after the elections.

Greece: The bull case

September 1, 2010

Back in April, I noted with respect to Greece that “the bear case is terrifying, and the bull case is very hard to articulate”. So it’s extremely useful to have a clearly-articulated paper from the IMF, entitled “Default in Today’s Advanced Economies: Unnecessary, Undesirable, and Unlikely”, which puts the bull case much more vividly than I’ve seen it before.

Harrisburg defaults

September 1, 2010

The Daily Beast kicked off this week’s offerings with a slideshow listing “20 Recession-Proof Cities”: the ones with high pay and sustained economic growth. I’m not entirely clear on how to link to any given city on the list, but if you click through you’ll find Harrisburg, Pennsylvania at #7, the very picture of a hale urban center.

Why munis don’t pose a systemic risk

July 7, 2010

David Goldman has reacted with a curious mixture of alarm and reassurance to Dakin Campbell’s story about U.S. bank holdings of municipal debt:

Entering the age of default

July 6, 2010

James Saft today quotes the “six ways to dig oneself out of a debt hole” of Jeffrey Gundlach. Boiled down, they are