Yeap. The activation of the Collective Action Clauses” (CACs) consist a “credit event”, said the International Swaps and Derivatives Association (ISDA) on Friday. Now the CDS will have to be paid out and all those who bet on Greece’s bankruptcy will make some nice profit. The CDS or Credit Default Swap is a financial swap, a kind of iinsurance agreement that the seller of the CDS will compensate the buyer in the event of a loan default or other credit event. The buyer of the CDS makes a series of payments (the CDS “fee” or “spread”) to the seller and, in exchange, receives a payoff if the loan defaults.
However the taxpayers should not worry. It is not us who will come up for the CDS but those credit institutes that sold them.
ISDA declares Greek credit event, CDS payments triggered
Greece triggered the payment on default insurance contracts by using legislation that forces losses on all private creditors, the International Swaps and Derivatives Association said on Friday.
The decision by the EMEA Determinations Committee to declare a so-called credit event was unanimous, ISDA said in a statement.
Markets showed little reaction to the widely expected decision. The euro edged lower against the U.S. dollar while U.S. Treasury prices saw losses pared after the ISDA announcement.
The ISDA said the use of “collective action clauses (CACs) to amend the terms of Greek law governed bonds issued by The Hellenic Republic such that the right of all holders of the Affected Bonds to receive payments has been reduced.”
The “credit event” ruling means a maximum of $3.16 billion (2.01 billion pounds) of net outstanding Greek credit default swap contracts could be paid out, though the actual amount is likely to be lower because bondholders are not losing all of their original investment.
ISDA said the auction will be held to determining the actual payout amounts on March 19. (euronews)
“However the taxpayers should not worry. It is not us who will come up for the CDS but those credit institutes that sold them.”
What? Don’t worry? Where do you think these credit institutes get their money? It comes from pension funds(now reduced), it comes from insurance funds(premiums to go up), it comes from savings(lower interest rates) and finally it comes from tax payers money invested by your government in insurance companies who sell Credit Default Swaps.
Lets just hope that the people best placed for insider trading on these CDSs, the Greek Government, invested wisely and bet against themselves.