Reggie would agree about BNP Richard. Imagine there will be a lot of eager hedge fund shorting predators even now scanning the savanna looking for the lame bank game to pick off.

The banks have until June so will they will be lending out money to businesses when they will be desperately scrambling to build up their capital? Seems doubtful in extreme.
So necessary as this may well be – does this not just kick the can across the road… back to the good old credit crunch side?

Richard,

The FT agrees with you saying that a combination of bans on some CDS trading plus attempts to define the Greek default (which is what it is) as NOT a default for CDS purposes could spell the end of the CDS market.

http://www.ft.com/cms/s/0/dccc8d98-ff03-11e0-9b2f-00144feabdc0.html#axzz1bt8rQDzD

Predictably the banks are indulging in special pleading saying this would be just terrible – the authors report that banks argue that a ban might increase borrowing costs for some sovereigns.

Actually it would be a good thing if sovereigns had to pay the proper risk-adjusted rate of interest on their loans. In the case of Greece and others this would have meant that things would have come to a head earlier when the sums at risk were much smaller and the bond market would have performed one of tits proper functions – enforcing discipline.

As it is the “insurance” that CDSs provide creates massive moral hazard with lenders given little incentive to perform due diligence. Also their presence means that the global financial system is dangerously interconnected and with out firebreaks. The only certainty seems to be that those who sold them will have safely retired with their bonuses before the system blows up.

This is just what I was saying the other day

Gleaned from the FT:
Along with a ban on some CDS, politicians want to ensure write-offs on Greek bonds don’t trigger ‘a credit event’
– i.e. a clamour for CDS payouts because it ‘could put further pressure on those banks having to pay out’

Other banks aren’t happy because this might kill the CDS market
– i.e. trying to prevent a run on CDS might stop the issuing of more CDS

The EU have banned ‘naked trading’ – the buying/selling of CDS without owning underlying bonds
– i.e. the equivalent of being able to buy fire insurance on someone else’s house, which until now has been within the regulations, fuelling the speculation in CDS (as opposed to simple hedging)

Bankers fear this will hit liquidity
– i.e. that preventing a complete free-for-all in the CDS market will dissuade speculators

The EU are concerned that speculation will drive up government borrowing costs
– i.e. speculation will drive up CDS costs and therefore the cost of borrowing which the CDS market is intended to moderate by diffusing risk; thus a device designed to lower borrowing costs begins to have the reverse effect

This will add to the pressure on banks having to pay out
– i.e. trying to protect the CDS market will reduce liquidity, increase prices and increase borrowing costs, triggering a default the regulations are intended to forestall

Citigroup have recommended selling French, Italian and Spanish bonds if CDS payouts on Greek bonds are not honoured
– i.e. unless CDS on Greek debt is allowed, possibly exposing the fragility of the contracts, the major banks will provoke a domino-effect sell-off, increasing the cost of debt, threatening a larger scale CDS ‘event’

Michael Hampden-Turner of Citigroup, says: “We have recommended selling French, Italian and Spanish bonds against CDS because fast money banned from taking shorts in CDS will likely try and reset those shorts in the bond market. There is a danger that politicians will drive up bond yields and borrowing costs because of the ban, which is an unintended consequence that could hit the peripheral economies.”
Seamus MacGorain of JPMorgan says shorting government bonds is “one option”.
– i.e. regulating CDS could make the situation worse

‘Other policymakers’ claim that CDS add pressure to bond markets and precipitate declines ‘because they move more quickly’
Even ‘market participants’ admit CDS markets can be manipulated
– i.e. not regulating CDS could make the situation worse

The International Swaps and Derivatives Association ‘likely’ to rule there is no credit event if the ‘haircut’ on Greek debt is agreed voluntarily.
Bankers say nobody would agree to 60%

Some say a Greek default ‘may have little effect’; others that it could have a ripple effect.

However, one thing is certain, say bankers: there is a risk that political interference in the CDS markets may end up hurting the peripheral and other economies by forcing borrowing costs higher
http://goo.gl/tWndz

Are these the same bankers that were bailed out by interfering politicians?
… curiouser and curiouser.

Michael Hudson has long referred to the endgame as a return to neo-feudalism/debt peonage.

Contrary to what the neoliberal textbooks tell you, oligarchy is the inevitable consequence of market fundamentalism.

In the neoliberal world there is a symmetry between the worker’s desire for a job and the demand of the employer for labour – hence no need to interfere in a free and equal contract.

This is usury writ large – when interest are charged on capital that doesn’t exist except as electronic digits and finance made idiotic by the ‘indebtedness’ of nations is sponsered by governments who, allegedly, are representative of their people and supposedly for their people.

The money experiment of financial wizardry is on the rocks. A proven failure socially, morally and productively with regard to the returns it affords towards the aspirations and quality of life and its sustainability for all sentient life on this planet.

They claim the stakes are high! For them, the 1% who have turned and tuned wisdom into an oxymoron perhaps they are. But for us, the 99%, the stake their demanding is beyond high and threatening to go literally stratospheric.

We have to grasp the nettle and by doing so prove it’s as elementally surreal as the product and industry that nourished it. They are playing a game of collaterals – their collateral security against our insecurity.

Arguably this is not so much a game as a war. Perhaps a game for them, where the casualties, both direct and collateral are few, while for us the direct casualties will be even less, but the collateral victims will be in billions and effect the world for generations.

Now that their idiocy has been exposed we really do need to force a change in both track and tack. If we don’t, then the idiocy will be in charge and it won’t be of an asylum it will a Hell Hole.

“banks’ capital target 9% after accounting for *market valuation* of sovereign debt exposures…”

The banks certainly won’t like that!

Telegraph on Merkel speech to Bundestag:

Lisbon treaty must change; private sector to pay more; “permanent monitoring” for Greece; on the EFSF: nein to more cash; nein to ECB invlmnt.

And:

“banks will be told to seek capital from the markets first and the bail-out fund only as a last resort.

The banks should also be subject to constraints on their dividend and bonus payments until they meet capital targets -groans from investors and bankers alike.

Europe’s banks will have to sustain a tier one capital ratio of 9pc by June 2012. ”

Wall Street Journal journalist comments “a recipe for credit crunch”.

Dow Jones newswires reports that Mrs Merkel said:

“No-one should take another 50 years of peace in Europe for granted.”!!!

Neil — I’d read those two leaked pages , link here (at the bottom of page) —

http://www.telegraph.co.uk/finance/jobs/8849420/Give-firms-freedom-to-sack-unproductive-workers-leaked-Downing-Street-report-advises.html

Despite the ‘business-friendly’ dog-whistling , it does look like a serious suggestion to reform a wasteful and dysfunctional system and incidentally to put a lot of P45-chasing lawyers out of business, hehe. Well it ‘d be the start for a serious debate…

A similar no-fault example is the NZ Accident Compensation Scheme, where you get compensated for injury whether in the home or at work —

http://en.wikipedia.org/wiki/Accident_Compensation_Corporation

Very sensible.