Needless to say, this is yet another massive transfer of wealth from people whose forecasts were right to those who are plain and simply losers.
What is going to be interesting is to find out whether there will be litigations around this decision, and even more importantly, whether the CDS market and instrument will survive in face of such a blatant fraud and theft.
Oct. 27 (Bloomberg) -- The European Union’s agreement with investors for a voluntary 50 percent writedown on their Greek bond holdings means $3.7 billion of debt-insurance contracts won’t be triggered, according to the International Swaps & Derivatives Association’s rules.
ISDA will decide if the credit-default swaps should pay out depending on whether it judges losses to be voluntary or compulsory. European leaders said in today’s agreement they “invite Greece, private investors and all parties concerned to develop a voluntary bond exchange” into new debt.
A last minute agreement was reached after banks, the biggest private holders of Greece’s government bonds, were threatened with a costly full default, according to Luxembourg Prime Minister Jean-Claude Juncker. The involvement of the Institute of International Finance, which represents lenders, also helped progress toward an accord that the EU could portray as non-mandatory.
“As long as the agreement is voluntary, then CDS aren’t triggered,” said Cagdas Aksu, an analyst at Barclays Capital in London. “Provided it’s voluntary, CDS wouldn’t be triggered unless the Greeks missed a payment.”
David Geen, ISDA’s general counsel in London, didn’t immediately respond to e-mailed questions.