"No warning can save people determined to grow suddently rich" - Lord Overstone

  • 46 mins Why Are Governments Creating Their Own Cryptocurrencies?
  • 2 hours How Debt Cycles Impact Gold
  • 3 hours Investors Up the Ante In $1.5B Uber Loan Deal
  • 5 hours Are Gold Miners Poised For A Breakout?
  • 6 hours Is The "Crypto Winter“ Over?
  • 8 hours China Says It Doesn’t Fear Trade War
  • 24 hours Twitter CEO: The World Will Have A Single Currency
  • 1 day Asian Currency Correction Could Signal Looming Crisis
  • 1 day Best Buy Drops Telecom Giant Over National Security Threat
  • 1 day The Pros And Cons Of The Federal Interest Rate Hike
  • 1 day Good News For Gold Bulls Despite Interest Rate Hike
  • 1 day Trump Hits China With $50 Billion In Tariffs
  • 1 day Russian Gold Reserves Hit Record High Amid Rising Tensions With West
  • 1 day Stocks Pull Back Following Interest Rate Hike
  • 2 days Will Regulatory Rollbacks Make Banks 'Too Big To Fail?'
  • 2 days Elon Musk’s $2.6 Billion Tesla Challenge
  • 2 days Tech Giants Could Be First Victims Of U.S. Trade War
  • 2 days Dow Gains Despite Fed’s Rate Hike
  • 2 days The Biggest Threat To Chinese Oil Futures
  • 2 days Spending Bill Could Cause U.S. Debt To Soar To 99% Of GDP
The Pros And Cons Of The Federal Interest Rate Hike

The Pros And Cons Of The Federal Interest Rate Hike

The United States Federal Reserve…

Are Gold Miners Poised For A Breakout?

Are Gold Miners Poised For A Breakout?

Sooner or later, stock prices…

Economists Polarized On Trump’s Tariff Plan

Economists Polarized On Trump’s Tariff Plan

Economists are polarized on Trump’s…

Ian Campbell

Ian Campbell

Through his www.BusinessTransitionSimplified.com website and his Business Transition & Valuation Review newsletter Ian R. Campbell shares his perspectives on business transition, business valuation and world…

More Info

Credit Default Swaps

On Friday, March 9, the International Swaps and Derivatives Association declared that the final Greek Sovereign Debt arrangements had resulted in a Greek debt default. This was for the purposes of determining whether those counter-parties who had insured Greek debt through Credit Default Swaps ('CDS', a form of Derivative) could be called upon to pay out on that insurance.

An article yesterday concluded that, as a result of market activity on Monday, March 12, the financial markets are treating the call on the related CDS's as a non-event, and that this "makes the CDS market seem a lot safer than it was just a few years ago".

The article also reports that the CDS market is less opaque (more transparent) than it has been in the past. It notes that about 90% of existing CDS's are collateralized, and that many banks that deal in CDS's now publicly report their positions.

I suggest that you make a point of reading this article. This will give you further background, but will also allow you to determine for yourself whether or not it influences your views as to the risks associated with, what are estimated by some, to be in the order of U.S.$32 trillion in CDS's outstanding (equal to about 50% of the World's estimated current annual GDP).

My own view is that it is 'early days', and financial market activity over the course of Monday should not be taken as a reading of much of anything. I also believe that my views that bank book equities likely are overstated as a result of the post-2008 accounting changes to the mark-to-market rules may play directly into the 'collateralization issue' mentioned in the article.

Certainly I would not conclude that the financial markets were 'out of the woods' with respect to Credit Default Swaps going forward - if for no reason other than that the numbers are too large on a relative basis for that to be the case in the face of existing country-specific Sovereign Debt / GDP balances.

While it may prove not to be a significant 'slip of the finger', I inadvertently typed 'Sovereign Bet' instead of 'Sovereign Debt' in the last sentence. I did, of course, correct it.

I believe outstanding CDS's may prove to be important to the ongoing well-being of the financial markets. I suggest you review this commentary with your financial advisor and determine his/her view on CDS's, the quantum outstanding, and the risk to the financial markets your advisor thinks attaches to them.

Read: Credit-Default Sway Time Bomb Failed to Go Off Over Greece: View. Source: Bloomberg, March 12. Reading time: 4 minutes.


Back to homepage

Leave a comment

Leave a comment

Sign Up For The Safehaven Newsletter