Monday, January 30, 2012

Does anyone think Greece hasn't already defaulted? I define default as showing up at the bank and not getting the interest or principal you are owed. In the immediate future there is no chance of showing up at the bank and getting all your money for Greek debt, what is being negotiated now is just how much of your money you won't get. Current estimates are for 30 cents on the dollar. All parties to the deal are acting like they still have a choice as to whether or not they will do the deal. The reality is simple, the deal must be done and all they are arguing about now is price.

Other considerations in the European situation are the credit default swaps (CDS). US banks with exposure to Greek, Spanish, Italian etc debt will hedge their long position by buying credit default insurance which would pay them if there is an event of default on the underlying sovereign debt. The ECB and the EU countries are trying to work out the Greek situation voluntarily which means these particular hedges are worthless as protection for the banks who own them. The financial industry has fought any attempt to centralize the tracking of CDS and consequently nobody has a handle of this side of the equation. This is AIG all over again.

Under the Heading of "Same old same old" the following;

Moody's admitted this morning, according to the Financial Times, that it "did not have any understanding" that MF Global , the failed futures broker had placed a $6.3bn proprietary bet on the debt of European sovereigns until a week before it failed.

According to the Wall Street Journal today, the regulatory authorities say they might never know what happened to the money at MF global. We are three years after the financial meltdown caused in large part by regulatory incompetence and the people who are supposed to enforce the rules to protect the public are still clueless. Bernie can you hear me?

Facebook is cranking up for an IPO which would value the company between $75bn and $100bn. It is an advertising delivery system aimed at people who find every detail of their own life fascinating. I know the business model works for Facebook but does it work for the advertisers? Tech bubble anyone?

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