“The International Swaps and Derivatives Association said on Thursday that based on current evidence the Greek bailout would not prompt payments on the credit default swaps.”


Here is a question for the crowd: Exactly how brain damaged, foolish and stupid must a trader be to ever buy one of these embarrassingly laughable instruments called derivatives?

The claim that Greece has not defaulted — despite refusing to make good on their obligations in full or on time — is utterly laughable.

In order to get paid on a default, you need a committee to evaluate whether or not failing to make payments is a — WTF?!? — default?  Even more ridiculous, the committee is composed of biased, interested parties with positions in the aforementioned securities?

ISDA: After this shitshow, why on earth would anyone EVER want to own an asset class that requires you to determine payout? Indeed, why should ANYONE ever buy a derivative again?

Category: Derivatives, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

58 Responses to “ISDA: Suckers Wanted”

  1. albnyc says:

    And the band played on.

  2. michael-D says:

    the more “they” are allowed to get away with, the farther “they” will push the boundaries

  3. Bob A says:

    I like it when he get’s right to the point like that :)

  4. Pantmaker says:

    …oh yeah and the S&P will go up forever.

  5. bobmitchell says:

    It’s even better than that. Pimco voted with everyone else.


    Funny how CNBS didn’t ask Herr Gross about this seeming conflict.

  6. Moss says:

    They want to kill the CDS ‘market’ for Sovereign debt…. at least until they don’t.

    Another example of the Bankster and Political elite cronyism.

  7. palmer808 says:

    easy solution and win-win-win
    create a product to insure this event
    get it?

  8. Frilton Miedman says:

    I dunno ’bout you guys, but when S&P rates something “triple A”, I bet the farm….I put all my faith in the prestige and trustworthiness of the global banking cartel, they have my best interests in mind.

    I also enjoy long walks on the highway during rush hour, skydiving with a parachute packed by a monkey and putting some zest in my coffee by adding glass shards for flavor.

  9. Clay says:

    I was wondering if this might occur…….and it did.

    What a damn joke. They ignore/supersede CDS and loan contract provisions I suppose as they we want.
    The bank stress tests were a joke……mark to model or par and exclude sovereign debts LOL.
    (Look where that got Dexia.)

    Who, if any of the CDS contract obligors will be liable there (apparently none?), and can or might the buyers of the contracts sue for payment? Where will the losses be taken and by whom….some of the debt holders and/or the ECB, Euro gov’ts/central banks, the IMF (screw that) or shared?

    The Euro Zone should be renamed to the La-La Land Soap Opera Zone.

  10. philipat says:

    The world will be a better place without insurance policies on my neighbour’s house. Perhaps the Banksters are about to self=destruct such derivatives. Something that they have prevented the :Regulatory” system from doing?

  11. NoKidding says:

    Anyone like leveraged ETFs? I wonder if they really carry the implied volume of contracts, and who audits them.

    And then there was GLD… Some day if the gold bugs are really vindicated, a surprise might be waiting.

    A man’s word still means something to me. A corporation’s word … spraying coffee.

  12. Your on point. Who indeed. Apparently people didn’t get the memo that Credit Default Swaps are to be sold not bought…….

  13. brianinla says:

    If you already own it, why would you still make the premium payments on any sovereign CDS now? Hopefully they killed their own product.

  14. howardoark says:

    What will be really interesting is the venue the owners of these worthless CDSs choose to sue in. It’s hard to believe that an American court won’t side with them (though I haven’t read the contracts). All of the European banks that sold the CDSs have American subsidiaries so the judgment can be enforced here if in fact the courts decide in the owner’s favor.

    Having said that, a contract’s a contract and if these contracts say the CDSs are triggered when the people who sold them (or their trained monkeys) say they’re triggered then the people who bought those CDSs are fools and they deserve to be poor – unless they’re managing my pension fund in which case they are naifs swindled by sharp operators who must be brought to the bar of justice and horsewhipped as indicated above.

  15. Centurion 9.41 says:

    Warren Buffett and Charlie Munger supported the rape of taxpayers via TARP to save the citizens and country from the impact of a financial.

    He didnt support it to bailout the banks and keep his Berkshire Hataway from blowing out. Noooo. Wasn’t needed he said. it was hedged and protected with ISDA approved CDS’s!


    BR: BRK has $38B in cash during the crisis, They were never in danger of blowing out.

  16. blackvegetable says:

    I thought for sure that there was something I wasn’t getting when I first read it. It’s like a Mexican Stand Off with nerf bats.

  17. hammerandtong2001 says:


    Barry, your energy invites a question.

    Where are the honorable voices demanding justice for the thousands of MF Global customers defrauded by Jon Corzine?

    Is he really “Too Big To Jail”?

    $1.6 Billion and counting …


    BR: This was my attempt to address the theft:

  18. maw53704 says:

    I think you are missing the big picture. Forget why anyone would buy this product. Let us assume someone wants this type of insurance to hedge a position. This type of behavior totally invalidates an entire industry both for sellers and buyers. What other financial contracts can be persuaded by the ????? to be invalidated when deemed inconvenient. HOW COULD ONE PROFIT BY THIS FLAGRANT DISHONESTY?

  19. Centurion 9.41 says:

    When revolutions occur, history has shown it’s not just the king and his court who are taken out and beheaded. All the bureaucrats, wealthy allies, and political supporters join them on the jubilee celebration stage.

    Save of course fine folks like Warren Buffett and Charlie Munger. Those brave souls who supported the rape of taxpayers via TARP, etc., for the good of the people. To save the fine citizens and country from the impact of a financial crisis. Warren and Charlie didnt support those measures to save the banks or keep Berkshire Hathaway from blowing out.

    Noooo. Noooo. Wasn’t needed. Berkshire was hedged and protected with ISDA approved CDS’s!

    I think many people are coming to more fully understand the French Revolution and why during all revolutions the government workers/bureaucrats are treated just like the kings and political leaders.

    I used to not understand how the mob could be so cruel.

    Now, I would have a hard time voting “guilty” for anyone in the mob that stormed the Bastille…..

  20. Centurion 9.41 says:

    On a practical note, this makes the real default calculations and exposure much much simpler.

    And I’m sure the real smart money long ago did the napkin calculations on the new game post rule changes.

    Oh, and by the way. The CB’s now are looking at numbers in the reasonable trillions range….completely within the digital capabilities of the Ctrl+P & Ctrl-P money game.

  21. Sechel says:

    The purpose of CDS is not to hedge but to allow banks to reduce required regulatory capital. CDS is the new insurance side-letter.

  22. GeorgeBurnsWasRight says:

    But remember, a large part of the “profits” earned during the past few years was from banks and other agencies swapping these pieces of paper with each other and booking “income” for doing so. And now, a large part of their assets are these same pieces of paper.

    Don’t worry. Be happy!

  23. GeorgeBurnsWasRight says:


    Corzine is a good guy, really, he “voluntarily” gave up his bonus.

    We’ll see the people who managed the robosigners jailed before we’ll see Corzine jailed. And we’ll see those managers jailed shortly after flying pigs slide like hockey pucks on the frozen lakes of hell.

  24. TLH says:

    Does this set up a precedence for default of all sovereign debt?

  25. Clay says:

    I read somewhere (??) some time ago that the largest portion of these CDS contracts are traded among the 20 largest banks in the world.

    I suspect many of these CDS trader firms are represented on this committee.

  26. obsvr-1 says:

    One has to wonder about the backdoor agreements that are taking place in the secret meetings of the banksta’s.

    Wonder if the banks and CDS counter-parties were strong armed into accepting this redefinition of default and as part of the deal get to feed at the trough of the LTRO and other CB handouts.

    And at the same time, remember sheeple a contract is a contract, so start paying your mortgage payment … too bad homeowners can’t get a similar deal in being able to take 50% off the mortgage and not trigger a default/foreclosure process…

  27. Tim says:

    Exceptionally great set of comments. And great flag Barry.

  28. farmera1 says:

    You really didn’t expect anyone to pay off on the $700 trillion or so in unregulated derivatives floating around the world did you. That amounts to some 20x the world GDP. No way no how.

    Deregulation is such a beautiful thing. Sell worthless insurance products, to other fools. Then either it is voted you don’t have to cover or the government pays. You get rich and some one else pays. A win win.

    My local insurance agent has a sign in his office:


    Obviously he doesn’t understand high finance. A lot of bonds have derivatives 10x there worth. Now what can go wrong with that.

  29. Lyle says:

    One suspects that the bosses of those on the committee received a visit from high ranking governmental officials who informed them that it would not be healthy for their company if the swaps were triggered. It might be a modern version of showing the instruments of torture to folks. In general if the government really truly wants to get someone they probably can. Anyway good riddance for sovereign CDS’s.

  30. rd says:

    This is why insurance companies have their own state regulators.

    The CDS purveyors have achieved financial nirvana. They get to sell unregulated “insurance” where a body that they control gets to decide whether or not they need to payout. No wonder that the major providers are TBTF US and European banks.

    As far as I am aware of, the only major payouts that have occurred were when the purveyor (AIG) had the money provided by the US government.

    The only thing that would surprise me is if the ISDA decided that something would warrant a payout.

  31. cjerian says:

    The CDS may yet pay out if the Greek Government gets to 70% participation and can force the remaining bond holders to convert their bonds. This type of compulsory conversion I’ve read is likely to be judged a credit event.

  32. Winston Munn says:

    It appears that Greek debt has reached a permanent high plateau….

  33. Market Panic says:

    Barry, I can promise you that you can relax.

    I spoke with a fellow I know who has an informed opinion.

    He told me that there will be another ISDA meeting in 1-2 weeks — very high probability $3.25 billion of outstanding CDS will be triggered and the holders of CDS will be paid.

  34. VennData says:

    Can I sell you “Supply Side tax cuts will pay for themselves” CDS’s? SSTCDSs?

    Oh look.. the GOP say they worked. I get paid.

  35. jaymaster says:

    Turning point here, as the curtain is finally pulled back.

    It’s the end of derivatives as we know it.

    And I feel fine.

  36. PETER EAVIS says:

    Greek Crisis May Test the Value of Swaps

    The restructuring of Greece’s debt that is scheduled to start next week may well demonstrate how effective credit-default swaps are.

    These financial instruments, which played a major role in both the 2008 financial crisis and in the European debt crisis, are meant to pay out if a company or country defaults. But the twists and turns over Greece’s debt are revealing their potential limitations for investors who hope the swaps will protect them against losses if Greece defaults.

  37. gman says:

    Even bookies have better sense than this. The bookies realize if word get out that they are fixing to many games it could kill the their business.

    The TBTF Banking oligopoly are not that clever or ethica,l and the have the full faith, power and credibility of legal, legislative and monetary branches of government of the 2 largest trading bloc the world has even known. USA and EU amount to banana republics.

  38. If Greece isn’t a ‘credit event,’ what is?

    The fact that Greece is not officially regarded as defaulting is ridiculous – and how anyone can say the 70% net debt “haircut” for the private sector is truly voluntary simply beggars belief.

    But now that Standard and Poor’s has downgraded Greece’s credit to “selective default,” that part of the fig leaf has been stripped away – and the International Swaps and Derivatives Association (ISDA) must declare that a “credit event” has now happened in Greece if the organization is to maintain any shred of credibility.

    A “credit event” will enable anybody who’s holding Greek debt to enact a credit default swap (CDS), a form of insurance that investors use to protect against default.

    For these insurances to pay out, there has to be a “credit event.”When the Greek parliament decided unilaterally to change the terms of its bond agreements with investors, that was the “credit event,” and now the ISDA must act.

  39. baychev says:

    Who would still buy CDS?
    Hedge funds that play with state pension plans money of course!
    There is not a better way to ‘hedge’ your losses and continue sucking the 2% management fee, which for some time is the only revenue source for most hedges anyways.

  40. Trader P&L says:

    Where on earth do you get the energy for the constant attacks of global stupidity ? I am thrilled you do it, but its exhausting!


    BR: I find it catharctic

  41. aalvarez says:

    Well they haven’t defaulted yet…. who knows, maybe they win the lottery between now and the end of may?!

  42. Hushed Up: Secret Panel Holds Fate of Greek CDS

    A secretive panel of representatives from 15 large banks, hedge funds and investment houses holds the key to potential multibillion-dollar payouts to investors as a Greek default looms.

    The group meets Thursday morning to rule whether Greece’s debt restructuring should trigger payments on insurance-like contracts known as credit-default swaps, or CDS.

    The impact of their decision will reverberate beyond the narrow confines of the Greek debt market and could affect investors across other European bond markets and the holders of $2.9 trillion in CDS on government debt around the world.

    But some investors complain the process is shrouded in secrecy and that it is rife with potential conflicts of interest.

  43. tradethisway says:

    Well said Barry. It’s indeed infuriating how the very members on that committee are the very banks trading these (and quite possibly net sellers right now).

    And good luck Mr. Gensler and the CFTC implementing proper derivatives clearing & trading rules.

  44. [...] That last point is especially important in light of the Greek Sovereign Debt default — which International Swaps and Derivatives Association, in a nonpublic meeting of derivatives bankers, declared to be an NONDEFAULT. [...]

  45. Bridget says:

    It’s a bad thing that high stakes gamblers who put the stability of the financial world at risk by speculating in the derivatives market get burned? I dunno, sounds sort of like Karma to me.

  46. Bridget says:

    In a perfect Libertarian world, they’ll all eat their losses and there will be no need for regulating the derivatives market because no trader in their right mind would ever buy another one. But nooooo. Somebody’s gonna figure out a way to get this passed off to the taxpayers (bailout) in return for toothless and ineffective regulations a la Son of Dodd Frank.

  47. willtruth says:

    Thanks Barry. Keep up the dislcosure. More Americans need to know the corruptness of some in the system.

    How can this not be a case of Fraud – in securities selling = Rackeetering ( RICO ) if ultimatley they do not declare CDS has been triggered at the completion of the Greek PSI?

  48. gman says:

    “It’s a bad thing that high stakes gamblers who put the stability of the financial world at risk by speculating in the derivatives market get burned? I dunno, sounds sort of like Karma to me.”

    Karma? An investor buys a Greek bond and then hedges and buys insurance protection. Then when it is time to collect the insurance company says you don’t paid. That is your idea of karma? Shame. It my idea of outright fraud.

  49. mezcal says:

    Sechel said:
    “The purpose of CDS is not to hedge but to allow banks to reduce required regulatory capital.
    CDS is the new insurance side-letter.”

    Perfectly said and worth repeating.

    These financial constructs are all about hiding risk from regulators (and customers natch) which then allows additional leverage.
    Biggest fraud in the history of the world.

  50. obsvr-1 says:

    @Sechel & @Mezcal:

    good point. So when will we see the repercussions of the fact that these ‘insurance side letters’, effectively void by this decision, on the regulatory capital requirements. Without the hedge/insurance the banks should be out of regulatory capital compliance. Now one can see why the ECB has flooded the banks with cheap $$ (LTRO), as data is showing 1T euros being deposited back to the ECB by the banks. The ECB intervention (much like FED) is manipulating the market and distorting contract law into mutated blobs of legalese.

  51. [...] would any one buy sovereign CDS now?  (Big Picture, Dealbook contra Felix Salmon, FT [...]

  52. klhoughton says:

    As I said on Twitter-and as cjerian and Market Panic indicate above–there is no declaration of default because there has not been a Default Event yet.

    There is a payment due on 20 March–19 days from the ruling. It may well be true that you, I, Bill Gross, and the everyone who runs a diner in Queens believes that no payment will be made on 20 March, but that hasn’t happened yet. And the Greek government specifically has not said it won’t make the payment; it has said, “Hey, take these bonds instead.”

    Now, you, I, Bill Gross, etc. may all agree that the alleged value of the replacement bonds is about 25% that of the current ones. We may also agree that one of the reasons people may well accept the offer is that, otherwise, the Greeks will default on the current bonds. But they haven’t yet, and this is not Minority Report (though we can all agree Phil Dick would approve of this world).

    So ISDA correctly ruled–the key phrase is “based on current evidence”–that there is not yet a Default Event. If everyone says “we will tender our securities due 20 March for the exchange offered,” there will not be a default of those bonds.

    You, I, and Bill Gross can all agree that the likelihood of this happening is about equal to the chance that Rick Perry will be elected U.S. President this year. But there has not been a Default Event.

    Wait two or three weeks.

    And what will be the economic difference of waiting to holders of the CDSes? I don’t know for certain, but if you’re looking at the standard ISDA CDS contract, there’s a reasonable assumption that (1) the market price of the bond will not change for the better and (2) it is a certainty that the Accrued Interest on the bond will be greater when they declare a Default Event than it is now.

    In short, yesterday’s ISDA ruling is actually good for CDS holders: they will receive more when (in two, or at most three, weeks) a Default Event is declared, without a deliterious effect on their principle repayment. (Indeed, I might incline to argue there is optimism in the current market that will not be there in two weeks, so the payment owed–[100-Price]*Notional/100–may be greater as well.)

    We can ignore the reality–that there is no true “market” for CDS in general, let alone Sovereign Debt CDS–and still note that ISDA abided by the letter of the law: the Greeks have not yet defaulted on an obligation, nor have they indicated that they intend to do so. When they do–there are few, if any, in the market who would treat the clause as a possible “If”–a Default Event will be declared and the CDS contracts will be expected to pay as they are due.

    Then the fun begins. If insolvency is your idea of fun. But that’s another story.

  53. ezzie2010 says:

    Cross-posted on the other thread on this:

    “That last point is especially important in light of the Greek Sovereign Debt default — which International Swaps and Derivatives Association, in a nonpublic meeting of derivatives bankers, declared to be a NONDEFAULT.

    I’ll be damned if I can figure out why.”

    As I understand it, a future default is obvious but has not yet occurred, and ISDA wants to stick to “objective” criteria as much as possible.

    Greece has made all of its payments on time.

    Greece has not repudiated the bonds by making the exchange offer because it has not said, without reservation, it will default on bonds that are not tendered into the exchange.

    If I remember correctly, Greece has said it will default on the bonds (by invoking the newly-minted collective action clause) if more than 90% of bonds are tendered into the exchange. It has said it may or may not default if between 75-90% of bonds are tendered into the exchange.

    If you are a Greek bondholder with CDS, Greece has no leverage over you. (The Troika is another question entirely). If you decide not to tender your bonds, Greece will either pay you, or your CDS counterparty will. If you tender, its your own decision.

  54. Bridget says:

    “Karma? An investor buys a Greek bond and then hedges and buys insurance protection. Then when it is time to collect the insurance company says you don’t paid. That is your idea of karma? Shame. It my idea of outright fraud.”

    Gman, buyers of naked credit default swaps are not investors. They don’t even rise to the level of speculators. They are gamblers, pure and simple. Their presence distorts the credit markets; causing mispricing of debt and creating winners out of the failure of companies and countries. I have little faith in the efficacy of regulation, less in the intestinal fortitude of the regulators and politicians to stop this nonsense. What is needed is a good dose of some consequences. Not another AIG.

  55. paloo says:

    Gosh I hate to defend ISDA’s decision, but the mere availability of CAC does not a credit event make. Can’t we agree that its application is the evidence that would compel ISDA view of a credit event that would trigger the swap payout?

    It’s maybe black letter law stuff, but at the end of the day, mere intention isn’t indictable – acts are. Barry, as our last vestige of hope in the defence of the rule of law, you should be the first to point this one out!

    Should ISDA fail after CAC is implemented ,of course, all bets are off and heads should be chopped. But we aren’t there yet, are we?

  56. Asymptosis says:

    re: your Angry Bear comment:

    Somebody Vinnie trusts says, convincingly, “Hey Vinnie: if you break Joey’s legs all your other customers will default as well.”

    What does Vinnie do?

  57. dschoales says:

    It’s hard to believe anyone is really surprised by this; when those who make the rules also enforce (or don’t enforce) them, they will choose to advantage themselves. This why there is so little trust in the system.