Monday, March 5, 2012

Will The Line Hold?

So the buzz today is that Greece will default this week. Is this a sure thing? No. Is this like a bumbling episode of Coronation Street? Yes.

It now appears remote that the €206bn voluntary bailout by bond holders will not go through as the deadline approaches this week. The word is if the collective action clauses are triggered this week, then the ISDA (Swap Dealers Association) may have to admit this is indeed a default and send the market into a frenzy. Furthermore, the amount of the credit default swaps will be brought out into the light.

There was talk of the decision last week of the ISDA to declaring, from its self-interested Towers, that the voluntary bond haircut plan will not trigger a default and hence a payout of zillions on the Credit Default Insurances held against the bonds. This was harshly criticised as the banks protecting themselves against the legal interests of insurance holders. There may be no way out for the ISDA banks now.

With well respected commentators here in New Zealand suggesting that we 'print' money to get ourselves out of the slump, and the ECB getting around their QE rules by doing the LTRO program, all this action in world markets seems a bit like heading for a cliff in slow motion.

If Greece defaults this week, we are all in uncharted territory. It will require those in power keep their heads and those holding the money maintaining the line.

If the line breaks, or wobbles, all hell could break lose.

Are you at least somewhere near protected?

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