Europe's ticking time bomb: Credit default swaps

michaelr

Former Staff
Dec 2006
89,668
6,643
FEMA Region 10
Europe's ticking time bomb: Credit default swaps


America's banks have rightly pointed out that they are only minimally exposed to European government debt. But they have been buying and selling default protection on those bonds, doing deals mainly with investors in the eurozone. Exactly how much is not known, because CDS are held off-balance-sheet.

Some recently released European data, however, make a ballpark estimate possible. Exposure by six major American banks to CDS on Italian debt alone, for example, may be as high as $200 billion. Overall, U.S. banks may hold two-thirds of the total euro-debt CDS outstanding.
A little double speak never really hurts....hahaha

$200 billion my ass.

Hot emerging markets for investors

It turns out some of the largest sellers of protection are banks in Europe. French bank BNP Paribas has sold $4 billion in protection on French government debt, 12% of the global total. Similarly, Italy's Banca Monte dei Paschi di Siena has sold $3 billion worth of protection on Italian government debt. If Italy, say, defaults on its debt, these banks might not be able to pay their American trading partners. "It's the ultimate moral-hazard trade," says Peter Tchir, CEO of hedge fund TF Market Advisors. "If a country defaults on its debts, these European banks domiciled in the same country will also default on their debts and won't pay out, so why not write the protection now and make lots of money?"
Good grief....A hot emerging market hey? NOT. This is a plea, invest in these bond, these failed bonds or your banks go up in smoke. Well it is too late for that shit.

The CDS for Greece are over due, unless the fed already bailed them out, and I think they might have. That last trillion went somewhere.
 
Feb 2011
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happyfunville
The international shell game designed to hide the failure of the big-gov welfare state marches on.
 

michaelr

Former Staff
Dec 2006
89,668
6,643
FEMA Region 10
The international shell game designed to hide the failure of the big-gov welfare state marches on.
No. This has nothing to do with big government welfare anything. It is about the collapse of the MBS and other derivatives due to the housing market collapse. The countries who bought those things can not pay their bills with them.
 
Feb 2011
40,024
9,769
happyfunville
No. This has nothing to do with big government welfare anything. It is about the collapse of the MBS and other derivatives due to the housing market collapse. The countries who bought those things can not pay their bills with them.
And the housing collapse was predicated by government meddling with lending standards in an attempt to facilitate home ownership for the masses.
 

michaelr

Former Staff
Dec 2006
89,668
6,643
FEMA Region 10
And the housing collapse was predicated by government meddling with lending standards in an attempt to facilitate home ownership for the masses.
No. Again, no. It was due to unemployment. It would not have collapsed as hard as it did had the MBS not collapsed. That is what tanked the market and unemployment went up again as did foreclosures. It becomes on chasing/leading the other. The problem goes parabolic.
 
Feb 2011
40,024
9,769
happyfunville
There are a multitude of reasons we're in this situation. Big government has it's corrupt fingers in all of them.
 

michaelr

Former Staff
Dec 2006
89,668
6,643
FEMA Region 10
There are a multitude of reasons we're in this situation. Big government has it's corrupt fingers in all of them.
The current chaos here in the US is because 3.5 million homes were foreclosed. 3.5 million? That's a drop in the bucket, and it doesn't matter why they were foreclosed, not for this thread, the wake made is relevant however, and that is what is crashed the EU and crashing us. Foreclosures are happening at alarming numbers again, and this time it will be 11 million homes...or more.