The weekly: Greece to default/restructure THIS weekend? thread

Quote from Happy Hopping:

whoever gave me the above link, bloomberg seems to be killing link for forever reason. Is there any other source for 5 yr. greece CDS?
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Presumably Greek CDS went up yesterday on the Greek referendum news? If you're a bank that's sold CDS on the assumption that a 50% voluntary haircut does not qualify as a an official "default", then having a "full default" due to a referendum and Greece leaving the EZ is the worst case scenario? You might have to actually pay the CDS longs...

I think I read somewhere that MF Global bought CDS against their European sovereign bond positions but they didn't work as a hedge because of the "haircut=no default" plans of politicians. The idea of having a voluntary haircut, but not calling it a default, makes things worse for those that have hedged bonds with CDS positions, right?

So we have this large binary payout for a CDS and one minute they look worthless, the next minute (Greek referendum) they become worth a lot?

Am I reading things correctly here? How much CDS exposure do the banks have? Do we have any detailed information on this?

Perhaps Martinghoul or others can chip in...
 
Quote from benwm:

The idea of having a voluntary haircut, but not calling it a default makes things worse for those that have hedged bonds with CDS positions, right?
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It makes CDS undependable, if not outright worthless.

Now, that may be a reasonable policy to intentionally pursue, but it will come with ramifications. Namely, without CDS, the sovereign debt market will have to do some deleveraging.
 
Quote from benwm:
Presumably Greek CDS went up yesterday on the Greek referendum news? If you're a bank that's sold CDS on the assumption that a 50% voluntary haircut does not qualify as a an official "default", then having a "full default" due to a referendum and Greece leaving the EZ is the worst case scenario? You might have to actually pay the CDS longs...

I think I read somewhere that MF Global bought CDS against their European sovereign bond positions but they didn't work as a hedge because of the "haircut=no default" plans of politicians. The idea of having a voluntary haircut, but not calling it a default, makes things worse for those that have hedged bonds with CDS positions, right?

So we have this large binary payout for a CDS and one minute they look worthless, the next minute (Greek referendum) they become worth a lot?

Am I reading things correctly here? How much CDS exposure do the banks have? Do we have any detailed information on this?

Perhaps Martinghoul or others can chip in...
More...
1) Yes
2) Yes, but it wasn't MFG's problem
3) No, there isn't really a move that discontinuous. CDS had value before the referndum news because the mkt was pricing some uncertainty. So yes, Greek CDS does move, but it doesn't move from 0 to 100pts upfront in a day.
4) I don't know. I don't know who does either.
 
Quote from Martinghoul:

1) Yes
2) Yes, but it wasn't MFG's problem
3) No, there isn't really a move that discontinuous. CDS had value before the referndum news because the mkt was pricing some uncertainty. So yes, Greek CDS does move, but it doesn't move from 0 to 100pts upfront in a day.
4) I don't know. I don't know who does either.
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4.) No one does.

Incidently I was watching a news channel the other day and some investment person was saying that fractional reserve banking means that loses do not amount to anything that affects the bank. He was confusing fractional reserve banking with leverage.

Incidentally leverage will not mean that banks do not get hit by the loses they will encounter. The guy was foolish.
 
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