One of the biggest frauds of the past few years took place yesterday. The International Swaps and Derivatives Association (ISDA) confirmed that no “event of default” has occurred with the Greek debt restructuring, therefore no payouts on any outstanding Greek Credit Default Swaps (CDS) contracts are due.
I wonder if the ISDA decision was not intended to end CDS contracts as a tool used in global finance. That certainly will be the consequence. Who in their right mind would buy an insurance policy on their sovereign bond exposure, knowing that the outcome is rigged and no payout can ever be expected?
I’ll go on record with this one. In less than one year, the bankers and political leaders in Europe will come to hate the ISDA decision. By destroying the private market for sovereign risk insurance, they have made it certain that Spain, Portugal and Italy will be locked out of the global bond market. Global investors were already shunning these countries. The ISDA decision on Greece will just make it worse for other countries that are considered potential default candidates.
Current ISDA Committee
Bank of America Merrill Lynch
Barclays
Credit Suisse
Deutsche Bank AG
Goldman Sachs
JPMorgan Chase Bank, N.A.
Morgan Stanley
UBS
BNP Paribas
Societe Generale
Citadel Investment Group LLC
D.E. Shaw Group
BlueMountain Capital
Elliott Management Corporation
PIMCO
(c) By Bruce Krasting
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