WTF: Greek debt vs. CDS
Just to be clear, if I’m a hedge fund who owns Greek bonds right now, and say I’ve hedged my exposure using CDSs, then why the fuck would I go along with a voluntary write-down of Greek debt??
From my perspective, if I do go along with it, I lose a asston of money on my bonds and my CDSs don’t get triggered because the write-down is considered “voluntary”. If I don’t go along with it, and enough other hedge funds also don’t go along with it, I either get paid in full or the CDSs I already own get triggered and I get paid in full (unless the counterparty who wrote the CDS goes under, but there’s always that risk).
Bottomline: I don’t go along with it.
None of this political finagling will change my mind. No argument for the stability of the European Union will change my mind. In fact, I will feel like arguing, hey if you force an involuntary voluntary write-down, then you are essentially making the meaning of CDS protection null and void. This is tantamount to ignoring legal contracts. And I’d have a pretty good point.
How’s this: let this shit go down, and start introducing a system that works, with a CDS market that is either reasonably regulated or nonexistent.
In the meantime, if I’m a Greek citizen, I’m wondering if I’ll ever be living in a country that has a consistent stock of aspirin again.