The Real Story Behind the Greece Debt Default

A recent thread entitled Greece Wipes Out Citizens began to address the issues involving the Greek debt default, but in reading through the OP and posts, I felt the very core was overlooked.

While I don't agree with all of Ann Barnhardt's positions, I find her to be very knowledgable (especially in the field of futures trading), fiesty and entertaining.

She has gone after Corzine and MF Global, and breaks down the whole Credit Default Swap insurance hedge by explaining who exactly is expecting windfall profits as a result.

I'll let her explain:

EVERYONE needs to understand credit default swaps (CDS) first. CDS are insurance policies that investors have traded – very similar to OPTIONS for my old clients and cattle people out there. Buying a CDS is essentially like buying a put. The buyer pays a premium, or fee, to the writer, or seller of the CDS that says that the seller will guarantee and make whole the buyer’s position in a specific bond IF the entity behind the bond (such as Greece) defaults. In exchange for paying the premium and being made whole after a default, the buyer of the CDS surrenders the bond position to the seller of the CDS, and the seller gets to keep both the premium paid plus gets to keep any salvage value of the defaulted bond.

So you buy a CDS to hedge your other positions, pay the premium and, should a default occur, you are protected and made whole, right? Wrong.

Here is what I STRONGLY suspect is going to happen with this 70% haircut plan. The bondholders are going to take the full brunt of the 70% haircut, BUT the body that actually dictates whether or not a default has happened – the International Swaps and Derivatives Association (ISDA) – will declare that this credit event is NOT a default, and thus all of the banks and entities that THOUGHT that their European debt positions were hedged with CDS will find out that they have no protection at all. And then the excrement hits the fan. Big time.

So the fact that the bond holders will only be paid 30% of the value is NOT a default? How can that be?

The argument that the ISDA will make is that a 70% haircut isn’t a default. This is, of course, abject horse manure. Try paying only 30% of your mortgage and see how quickly the word “default” is used. They are using the 70% figure because a 30% payout is just enough to make the legalistic argument that a FULL default hasn’t occurred - which makes NO SENSE because salvage value is one of the core concepts in CDS contracts.

Default is not being able to pay in full, no? Why would they do this? Who stands to gain from this?

I will venture a guess as to who two of the largest writers of Eurotrash CDS might be. How about . . . oh, I dunno, Goldman Sachs and J.P. Morgan? Guys, what MF Global was doing with customer funds – “hypothecating” and leveraging the customer money into European bond positions “hedged” with credit default swaps – THEY’RE ALL DOING IT. All of the brokerage houses. All of the investment firms. All of the retirement account custodians. ALL OF THE BANKS. I can almost promise you that Goldman Sachs and J.P. Morgan have been sitting on a net short position in Europe, quietly betting against European paper, all the while pimping and selling long European positions (It will be fine! The bailouts will come!) AND happily selling TRILLIONS of dollars worth of CDS to their customers to “guarantee” the customers’ long-Europe positions against default, knowing full well that Europe WOULD collapse. (Duh. Anyone who can do 2nd grade math knows that.) When the collapse happened they knew from the beginning they WOULD NEVER HAVE TO PAY OUT ON THE CREDIT DEFAULT SWAPS THAT THEY WROTE because the ISDA was populated BY THEIR OWN PEOPLE, and the ISDA would therefore never declare a default. They would therefore pocket the premium received, but most importantly would then swoop in and BUY UP ALL OF THE BANKS AND BROKERAGES DESTROYED BY THEIR UNHEDGED NET LONG-EUROPE POSITIONS.

Goldman and JP on both sides of the trades again? Perhaps knowing they will collect on the winner and not have to payout on the loser? Nahhhhhhhhh....

Why would Goldman and J.P. Morgan write these CDS contracts knowing full well that Europe was mathematically impossible to save and thus guaranteed to default, and that the inevitable European default would then lead to demands for payout that were – again – mathematically impossible? We are talking tens if not hundreds of trillions of dollars. We are talking multiples of the size of the entire economy of the U.S. - and that is just the exposure of ONE BANK (i.e. JPM @ $78TTT). There is no possible way to payout on that. It seems to me that these CDS writers knew from the start that they would never have to payout. They knew that their people in the ISDA would never declare a default, but would always leave some trifling payout to “legally” skirt default. If it ever got to the point that there was a full default, World War 3 would be the result and thus the entire point would be moot. The bankster oligarchs would at that point be moving fully to declare a new totalitarian world government and abolish and seize all private property. Game over.

I am neither surprised that this is a possibility, nor that Ann deduced it.

SOURCE

The worst part of this is, they get away with it at the highest levels, with no punishment whatsoever. It is systematic financial rape and murder of country after country, and thanks to our idiotic, lying mainstream media, hardly anybody except the players in this obscene game know what is fixing to happen.

The Great Depression was precipitated by the stock market crash on October 29,1929, by J P Morgan himself starting rumors that certain smaller banks were insolvent, thereby creating a mass panic and a run on the banks. When the banks and associated businesses crashed, J P and his cohorts swooped in and picked them up for pennies on the dollar. It is like killing somebody and then picking their pocket, and getting away with it.

This time, instead of J P Morgan, we have Jamie Dimon, poster child for everything that is wrong and evil about Wall Street. Let us not forget Goldman Sachs, always at the heart of everything crooked.

No wonder they want the internet censored, because as long as people are aware of their evil doings, they have to hide in the shadows and do constant damage control via feeding stories to the media and smarmy PR campaigns about how much they care about Joe and Jane Six-Pack.

Good post, thanks for sharing.

reply to post by FissionSurplus


Thanks for reading. For those who are not in the market (or USED to be, like me) this stuff might be a little confusing.

I am not as well-versed in the '29 crash, but:

When the banks and associated businesses crashed, J P and his cohorts swooped in and picked them up for pennies on the dollar.

...and then made himself look like a hero for coming to the rescue. Criminally brilliant.

These are arch criminals...they are the ultimate in anti socialism....anti humanism, anti life......
That we have not stopped this madness yet is to our shame. and we will forever be indebted to these monsters if we continue to work under their rules,Its definately time to opt out of their system and start something new and just.

These are arch criminals...they are the ultimate in anti socialism....anti humanism, anti life......

reply to post by stirling


Here, Here!

They make the rules we all have to play by, and then they themselves play by none of them.

It's true evil, in the most historical, biblical fashion.

you got it soo wrong.

CDS are old news in the IB, you need to watch $/Euro spreads. That is the # they are shorting, and buying alot of PM`s.

You really think they are still hedging their clients with greek CDS`s? or even any other PIIGS? maybe but not massively. They issue this and fob it off to outer counter parties.

Just look at the basis points, Greece will default and spark a credit level event. And it will be the eurozone which pays, primarily the ECB. The vampire squid and JPM will be unharmed, they dont predict the market they drive it.

What Ann Barnhardt failed to mention is that Jim Sinclair actually broke this story on the evening of Monday, Jan 30 in an interview with Ellis Martin. By the time she posted "her" Red Alert the morning of Feb 1, the story had already gone viral on market related websites.

The Most Powerful Body In Finance And What They Mean To You

January 30, 2012, at 7:37 pm
by Jim Sinclair

My Dear Friends,

I was interviewed today concerning the most powerful body in the financial world that now holds in its hands the near future of all markets, from currencies to commodities, based on a single edict to be given.

The interview is being processed and should be posted here later this evening.

This organization supersedes all governments and central banks today in terms of the financial power they edict. This organization can have a greater impact on your pocketbook than the FASB did when they killed "true value" accounting.

This body is made up of the key players of the five largest banks in the USA and other countries. This body by their actions this week will guarantee QE to infinity.

This is relevant to all your assets, yes all. If you have the time listen to it please. If you don’t have the time listen to it please. If you don’t listen to it do not blame me when all hell breaks loose six months from now.

Not one word about this body was on the airwaves today, yet this group by a simple decision rules the financial plant. They will be making this edict in just a few days. They have to do it again this year. It is then that you know what will hit the fan.

I feel this is it for jsmineset.com tonight. I do not want to write another word and detract from the revelations you will hear.

Your financial future, even if you have never heard of them, is in this organization’s hands. Check in later for the interview. If you don’t check in your finances might just check out.

Please remember you have been informed of this impending edict as a service to the community.

Respectfully,
Jim

Source

Audio Interview:

The Impending Undeclared Default Of 5 Major US Banks

Next time, please grant credit where credit is due...Ann.

I've been keeping up to date on this topic because it sounds so bad. I've come to the conclusion that it's just not the doom it's advertised to be. The bottom line is the simple fact that the ISDA can call it something other than a default renders it virtually impotent. The can will be kicked down the road again...

Is this illegal? Hell yes! If any of us 'defaulted' in this same manner on ANY debt we owe we'd end up homeless, wages garnished, and possibly in jail.

The sad fact is, many of the ISDA members are the very same banksters that have been raiding the coffers of the American taxpayers and this is just another instance of them showing us they are in charge; they can do whatever they want to, and apparently they enjoy rubbing our faces in it.

Now this game can't go on forever, it will crash and burn in due time, but not today... not this week; probably not even this month.

On a side note I had a dream last nite that told me it's time to short the market, so I probably will.

I was smart enough (lucky?) to pull my money out of the market in 2007.
So I didn't feel the brunt of the 2008 crash.

Many of us already know that the economy is in a virtual limbo. Countries are defaulting, but there is never an official declaration of such.

I suppose there never will be until it's too late.

Thanks for the read OP!

Originally posted by SuperManny


On a side note

I had a dream last nite that told me it's time to short the market, so I probably will.

This is an outstanding theread, thanks or the info OP and others. This $@ absolutly mind boggling.

However, I wanted ask superManny about why you mean by shorting the market?

Originally posted by Quetzalcoatl12

Originally posted by SuperManny


On a side note

I had a dream last nite that told me it's time to short the market, so I probably will.

This is an outstanding theread, thanks or the info OP and others. This $@ absolutly mind boggling.

However, I wanted ask superManny about why you mean by shorting the market?

Put simply, it just means that you make money when the market goes DOWN, instead of the more politically correct way of making money when stocks go up. It's often frowned upon, and looked at as making money off others' misfortune.

For example; one way I short the market is to buy SPXU. It's tied to the S&P 500, and the fund makes $3 every time the S&P 500 loses $1, and vice versa. Here's a video with some more shorting tips if you're interested.

You really think they are still hedging their clients with greek CDS`s? or even any other PIIGS? maybe but not massively

I think the Big Boys are shorting for themselves (and respected clients) and then selling off CDS. These guys have been caught on both sides of trades many times.

What Ann Barnhardt failed to mention is that Jim Sinclair actually broke this story

Barnhardt is simply an opinion blogger, not a news journalist who "breaks stories." I follow her because I enjoy her insight and commentary. But thanks for the addition. I've not heard of Sinclair.

Now this game can't go on forever, it will crash and burn in due time, but not today... not this week; probably not even this month.

Took the words right out of Kyle Bass' mouth. He is saying the exact same thing. Spot on!

I was smart enough (lucky?) to pull my money out of the market in 2007.

Well done, Friend. I am curious as to what other, if any, investments you have since then. Metals?

This is an outstanding theread

Thanks - just passing along some info I found interesting and important.

one way I short the market is to buy SPXU. It's tied to the S&P 500, and the fund makes $3 every time the S&P 500 loses $1

Triple leveraged? Do you buy puts or sell calls also?

Thanks to everyone for commenting.

I have a really technical question here, that will require an absolutely flawless understanding of not only history (real history), but human nature as well.
The question is, will people wait until they are near starvation, without a home to call their own, clad only in cheap imported rags, their firearms a fading memory, and their corner of the world a toxic dump...before they decide to take action in mass?
Are we approaching a "guillotine" level event? I would hope that we don't wait too long.

Originally posted by DannyboyUK
you got it soo wrong.

CDS are old news in the IB, you need to watch $/Euro spreads. That is the # they are shorting, and buying alot of PM`s.

You really think they are still hedging their clients with greek CDS`s? or even any other PIIGS? maybe but not massively. They issue this and fob it off to outer counter parties.

Just look at the basis points, Greece will default and spark a credit level event. And it will be the eurozone which pays, primarily the ECB. The vampire squid and JPM will be unharmed, they dont predict the market they drive it.

edit on 2-2-2012 by DannyboyUK because: (no reason given)

CDS's were never about hedging. Buying a CDS against bonds you own makes the whole trade a loser. CDS were bets against debt. Now the bookies don't want to pay off. They should have just outlawed the damn things back in 2008, but they didn't so the CDS's should be paid off with this default or whatever they want to call it. Of course if they screw the CDS holders that would set a precedent for CDS's to go away on their own.

Originally posted by capod2t

Originally posted by SuperManny
...one way I short the market is to buy SPXU. It's tied to the S&P 500, and the fund makes $3 every time the S&P 500 loses $1

Triple leveraged? Do you buy puts or sell calls also?

Thanks to everyone for commenting.

Yes, but it's generally not a good idea to buy options on leveraged funds; there's not enough open interest and the spread will kill you.

But I did buy some SPY puts, which is in essence shorting the S&P 500.

It was about the CDS all the time