Claims without evidence

…perhaps the biggest sin of the lot was effectively to render all credit default swaps (a form of insurance against default) on sovereign debt essentially worthless, or void, by making the Greek default “voluntary”. This has made it impossible to hedge against eurozone sovereign debt purchases, and thereby destroyed the market. Worse, it’s made investors believe that the euro cannot be trusted, that it’ll repeatedly find ways of reneging on contract. That’s the point of no return. This is no longer a serious currency.

I am by no means sure this is correct, but I thought I would pass the argument along.  The link is here, the pointer to the broader article is from dearieme, a loyal MR reader and commentator.

Comments

If the Euro is as "untrustworthy" as this argument claims why is it so (relatively) strong? Today 1 Euro = 1.3 $ which is stronger than it has been over most of its history since 1999. (it was stronger in 2008-2009 but that's about it)

http://www.ecb.int/stats/exchange/eurofxref/html/eurofxref-graph-usd.en.html

Good question, perhaps Merkel has not blessed off on the printing presses yet and wants to retain the German "hard money" influence to the utter, pyrrhic end.

The euros exchange rate is set by supply and demand (do I really have to point this out here?), both the Fed and the Bank of England have, as we all know, printed weelbarrow loads of currency-massively increasing supply,while at the same time throught much of the eurozone money supply is actually shrinking-thus less supply of euros.

"…perhaps the biggest sin of the lot was effectively to render all credit default swaps (a form of insurance against default) on sovereign debt essentially worthless"

Several points come to mind.

1. If this was really true, investors would be rushing to sell CDS contracts on Eurozone sovereign debt. Why not? If Ambrose Evans-Pritchard is correct, then you will get paid and have zero liability risk (no "credit event" will supposedly ever occur).

2. At another level, AEP is very right. The fact that "the rules change as convenient" will certainly hurt the Euro to a significant degree. Worse, the rules were not the work of the flaky periphery (the PIIGS), but mandated my the core. Bad enough that Greece is insolvent. Greece has been in default many times before (1826, 1843, 1860, 1894 and 1932). Much worse that Germany and France insisted on "voluntary" defaults and refused to allow a "credit event".

3. Strangely enough it may not matter all that much. Financial markets are amazingly forgiving. The worst sins on the part of borrowers seem to be forgotten after 10-15 years. A few more years of fast growth and Argentina will be the darling of foreign investors.

"1. If this was really true, investors would be rushing to sell CDS contracts on Eurozone sovereign debt. Why not? If Ambrose Evans-Pritchard is correct, then you will get paid and have zero liability risk (no “credit event” will supposedly ever occur)."

Well, no there is still a chance they will have to pay out.
Anyway, this is probably what made sovereign debt interest rates skyrocket all over europe. Before, part of the risk was being absorbed by the CDS market, now more of the risk is being priced directly into the bond yield.

Correct. The reason as far as I can see why Italian yield went off the deep end the last 4 weeks is the 'volunteering' haircut that various entities conspired to term a non-default event. That has effectively force the bond buyers to factored in risk directly into the yield. If you take away the ability of CDS to actually perform its function, market will find another way to get that risk factored in.

BigFire,

"If you take away the ability of CDS to actually perform its function, market will find another way to get that risk factored in."

I don't disagree (at all). However, aren't CDS rates and interest rate default premiums supposed to move in tandem? A quick check of the data doesn't show that by the way.

They normally do, Peter. They don't when governments put a wedge between them (which is what happened here).

Yes, exactly.

Planners vs markets again. Megan's point the other day about asking the wrong questions still seems paramount -- you can't legislate risk away, but that doesn't stop the planners from trying, indeed the failures only serve to demonstrate the need for more coercion...

The "smartest people in the room" are drooling idiots compared to all of us combined pursuing their own ends. And this is why technocracy always fails.

The CDS issue is interesting though:

http://www.nytimes.com/2011/11/20/business/credit-default-swaps-as-a-scare-tactic-in-greece.html

If you have issuers on one hand like AIG who simply can't pay and issuers who can just decide not to pay on the other hand, why would anyone buy the stuff? It seems like the orignators of the insurance are just making free money collecting fees with no real requirement to pay out. If on the odd chance you do have to pay just throw up your hands and declare bankcrupcy. The more fake insurance you issue the more likely you are to get bailed out in fact.

I suspect it is because while CDS are not particularly useful as insurance per se, they can create a situation in which risk becomes systemic, thus increasing the likelihood of bailouts by government.

I also suspect this distinction is much, much more important than is commonly appreciated.

"I suspect it is because while CDS are not particularly useful as insurance per se, they can create a situation in which risk becomes systemic"

All insurance does that. period.

It's certainly not supposed to.

My point is that there's a sort of emergent property to these vast arrays of CDS, which is that institutions become so interlinked that if one major player fails, the financial system itself is at risk -- which is useful to the insured, because it means even if their insurer fails they have the gov't as a backstop. This is what Glass-Steagal was intended to prevent, all those years ago, and bailouts should have been conditioned on this not being allowed to continue.

Well, you can thank the Commodities Futures Modernization Act of 2000 for that. Some states said CDS were gambling, and regulated them as gambling. Some states regulated CDS as insurance, and regulated them as insurance. CFMA said that credit default swaps were neither and pre-empted all state regulation of CDS. So there are no regulations about credit default swaps, because we had to get the government off the backs of business, you know, and if that results in the collapse of the financial market, well too bad for all the little people. Because we'll just blame it on Clinton somehow.

It's more a case of things adding up over time. The declaration of CDS as all but null and void was a clear result from the desire of politicians to dodge the mess they thought would result from having a credit event and, what's worse, a result of their long-held hunger to punish 'speculators'. Eventually people get sick of this treatment and decide to take their ball home.

The key thing is, though, that people simply weren't ready to imagine that supposedly first-world nations such as Greece or Italy could go bankrupt. That's changed.

Howls of outrage on lack of CDS-triggering credit event driven by holders talking their book. CDS expire quarterly, with next expiration 12/20. Like any other option, expire worthless unless credit event declared before then. Have seen this before, whenever a company is dancing on the edge of default when a CDS maturity approaches. (e.g. Aiful) Strangely, there was no whining on the other side when Fannie Mae and Freddie Mac senior debt CDS triggered on their conservatorship, although all the debt was govt-affirmed, performed and remained AAA. CDS holders received payouts equal to the maximum (interest rate and not credit) driven mark on any FN or FH security. No squealing about the integrity of the market then. CDS exist as an optimal way to short the credit, and are a terribly suboptimal way to be long a credit. CDS market will dwindle as supply of fools willing to write protection is exhausted.

It is possible (likely) that Ambrose Evans-Pritchard is basing his comments on the writings of Willem Buiter, Chief Economist for Citigroup. See "Why we should not panic if deep Greek sovereign debt restructuring triggers CDS" (http://willembuiter.com/cds.pdf). A few quotes

"It is possible that some exceedingly clever lawyers and PR specialist could convince the relevant Determinations Committee of ISDA that a 50% or 60% haircut need not indicate a credit event, but, were this to occur, it would probably do more damage to the EU sovereign debt and CDS market than would have occurred had a credit event been declared and CDS triggered. The reason is that a failure to trigger CDS when, according to common sense, economic logic and commercial rationality, CDS ought to be triggered, would impair the value of CDS as an asset class. In the Euro Area there are more than a trillion dollars’ worth of sovereign CDS outstanding. Market participants (pension funds, insurance companies, banks, asset managers and hedge funds) that have bought CDS as insurance against Greek default would be denied the pay-out on their insurance policies. The response might well be a rush to unload the underlying assets of these Euro Area CDS, the sovereign debt of all vulnerable Euro Area member states. This would be rational contagion par excellence – and it would have been triggered by a failure to trigger CDS on Greek sovereign debt when the sheer magnitude of the write-down on the Greek sovereign debt would have made a credit event the reasonable, logical outcome."

and

"What is more, avoiding triggering CDS when the fundamentals suggest they ought to be triggered, would further erode credibility of EU/EA policymakers. That credibility is already weakened by the slow and piecemeal response to the crisis. But some of the support measures considered currently make a further erosion of policymaker credibility especially problematic. For instance, the success of the proposal that implies that the EFSF provided (first-loss) guarantees for new issuance of EA sovereign debt in the primary market relies on the belief of market participants that such guarantees would actually be honored in the future. Avoiding CDS payouts on technical or legalistic grounds could make any such assurances less credible. And even the original EFSF relies on guarantees by EA member states. Any action that undermines the credibility of promises by EA member states or the EFSF to honor guarantees thus has the potential to unravel the entire EA support architecture."

Also, it would seem that if the current wording of a CDS contract is not to the liking of the counterparty because it isn't invoked where there is a "voluntary" haircut, one could draft a CDS that would specify the conditions that would constitute a default of the type others claim is not a default. While you can't draft for all contingencies, one certainly could draft for large scale government negotiated haircuts, even if they are called voluntary. The premia would also tell you something.

CDS contracts initially traded with a range of options on credit events and individually negotiated settlements. They were standardized around 2005 or so. What the prior premia indicated was a serious lack of liquidity and the costs of imperfect offset and settlement...

Bill,

Apparently, ISDA has some leeway in deciding what is a "credit event" and what is not. Presuming immense political pressure at this point would be quite reasonable.

Oh, Peter, have more faith in lawyers being able to draft documents! Not everything is political, or, if you fear it is or will be, you can draft an objective contract tied to measurable criteria. It's just that the contract might not be a standard one. And, hell, if you think the ISDA is biased, you can negotiate who you want to be the decider.

"I am the decider." Maybe George would be.

Bill,

"Oh, Peter, have more faith in lawyers being able to draft documents!"

Are you a lawyer? That's both a joke and a serious question. The current dispute over a credit event in Greek sovereign bonds is tied to the "voluntary" nature of the PSI (Private Sector Involvement). How do you demonstrate that it is not voluntary, if the participants assert (so far) that it is?

I am somewhat surprised that no dissenters have appeared so far, given the incentives to collect on a CDS after a credit event. However, could a dissenter force ISDA to declare a credit event if ISDA was disinclined? Via a lawsuit? Bench ruling?

In what court?

Ah, Peter, I am a lawyer. (You have good deductive skills). I have not seen the contracts, but I would suspect they would contain choice of law and dispute resoultion provisions. I would guess the disputes would be before a panel of arbitrators appointed by the body.

I would also suspect that with industry drafted forms (often drafted by committee) that this contingency of "voluntary" was addressed, if it is anything like the way standard form agreements drafted by, say, insurance rating agencies are drafted.

But, going back to my earlier point, parties can draft any agreement they want, or take an existing agreement and substitute definitions, for example, of material events.

The wonders of language let us do that.

Bill, my understanding is that the contracts just say "it's a credit event if the ISDA says it is". The assumption was that the ISDA would act in good faith because it has representatives from financial companies equally like to be on any given side of a CDS contact and because its reputation for good faith is valuable to it. I think no one considered the possibility that third parties with massive political and regulatory powers might want to tip the scales. (In a similar vein, how many mortgage contracts have terms that a triggered when a regulatory body re-writers the rules, e.g. "if this state becomes non-recourse, the borrower will pay $2500 compensation to the lender".)

David, I am wondering if there are other examples of when the ISDA didn't rule it was a credit event similar to this. (Latin America? Asia?, etc.)

Bill: Looking at their web site, I don't see a record of any determinations on sovereign defaults. In situations where a sovereign flat-out said "I default" (Argentina, Russia), I suspect insurers just paid out without asking for a determination. It looks like there is an issue before them now (2011031101) on whether it constituted a credit event when Ireland's bondholders became involuntarily subordinate to the IMF.

They government can always break these contracts because it can blackmail the parties involved. This also happened here with the Chrysler giveaway to fiat.

NameRedacted, If you thought carefully about your comment--that the government can always break these contracts--is inconsistent with businesses paying for the contracts in the first place. Afterall, if the government can break them with impunity, then they are worthless and you were a fool for purchasing them.

@Bill your statement is on point. Standard CDS are governed by 2003 ISDA Credit Derivative Definitions, which were a rewriting of the original 1999 Credit Definitions (before that, all trades were bespoke conditions, boy was that a mess...) There is no reason why ISDA can't rewrite the Sovereign Credit Events to include "Materiality", something that was used often pre-1999. You can find the Definitions the ISDA store: http://www.isda.org/publications/isdacredit-deri-def-sup-comm.aspx, although you can probably find them for free somewhere.

If all the CDS are hedges--that is, if they're all held by investors also holding the underlying sovereigns--then this is just a joint negotiation over restructuring of both the sovereigns and CDS together. Why would that be beneficial? Because it avoids some marking to market and some counterparty risks of the sort experienced with AIG in 2008. To the extent this is true, it represents an accounting dodge.

But it seems highly unlikely that none of the CDS are held 'naked' in which case, at a minimum, there's going to be lots of litigation. Maybe the Eurocrats don't care; by the time it all gets cleared up the crisis will have passed, one way or another.

Still, like others, I am surprised that one cannot see the incipient arrogation of property rights over sovereign CDS in prices. Could it be that there is no trading in these right now?

There is no risk-free investment.

The ticker for the 5 Year Greek CDS is apparently GRCD5. It has traded at least as high as 9537. The last trade is 7204. Since Greece is not notably more solvent, the most likely explanation for the price decline is a declining probability of a "credit event" no matter how badly Greece defaults.

See also http://workforall.net/CDS-Credit-default-Swaps.html for a wealth of EU (and other) CDS pricing data (of unknown accuracy).

A contrary chart from 2011/11/18 (http://seekingalpha.com/article/308983-ecb-under-pressure-the-bank-funding-crisis-escalates-part-2) does not show any fall in Greek CDS pricing (save few a few days around 2011/11/01).

Perhaps a touch pedantic, but the article wasn't by The Blessed Ambrose but by Young Jeremy.

dearieme,

Absolutely correct. That you for catching this. I fell for the name in the upper left hand corner. Sounds like AEP...

Noted below, as I too made that mistake.

There was an earlier discussion on the Greek CDS here: http://kiddynamitesworld.com/greek-cds-no-soup-for-you
Pay particular attention to the addendums. Apparently the amount of Greek CDS is quite small. I think we are still waiting for an authoritative statement on this situation.

First, CDS are not insurance contracts. Second, this will deteriorate the integrity of the Sovereign CDS market, and those wishing to hedge a long position in bonds will now be even less inclined to purchase the bonds to begin with (making the fiscal situation even worse for Greece, Italy, Spain, Portugal, Ireland, France, etc...). Bureaucracies - once again - are only hurting the people that they CLAIM to represent. YET ANOTHER CENTRAL PLANNING FAILURE.

This is interesting: http://www2.isda.org/search?keyword=GREECE

And now this: "The European Union demanded Wednesday sweeping powers to override national budgets and proposed issuing joint eurozone bonds to help resolve and prevent a repeat of the debt crisis."
http://uk.news.yahoo.com/eu-launches-bid-rewrite-eurozone-budgets-032511566.html

Here's a thought to ponder: IL and CA are in nearly as bad a shape as the PIIGS. Now consider the effect on the U.S. muni market of "voluntary" defaults.

Just look at the prices of CDS. If they were really rendered "essentially worthless" they would have gone to zero. But they weren't, and so they haven't. The restructuring really is voluntary even if the holders of the vast majority of bonds have no choice but to agree to the restructuring. Their CDS hedges will work perfectly fine as long as there are some bondholders who will hold out to whom they can sell their CDS at high prices. And since outstanding CDS are only a small fraction of outstanding bonds, only a small fraction of bondholders need to hold out.

Ah, Ambrose Evans-Pritchard, a journalist so far ahead of his time, he was writing about how Germans were scrutinzing their euros to avoid any inferior ones, like those from Greece. As per this -
'Notes printed in Berlin have more currency for bank customers who fear a 'value crisis'

Ordinary Germans have begun to reject euro bank notes with serial numbers from Italy, Spain, Greece and Portugal, raising concerns that public support for monetary union may be waning in the eurozone's anchor country.

Germany's Handelsblatt newspaper says bankers have detected a curious pattern where customers are withdrawing cash directly from branches, screening the notes to determine the origin of issue. They ask for paper from the southern states to be exchanged for German notes.'
http://www.telegraph.co.uk/finance/economics/2791587/Support-for-euro-in-doubt-as-Germans-reject-Latin-bloc-notes.html

The whole article is fun, being from 2008. I was unable to find that Handelsblatt article, both online or by flipping through copies (the Handelsblatt, like Die Zeit, tends to have a certain demographic which makes it almost universally accessible when you know enough people, though neither is precisely mass circulation). Not a single German I know has ever checked their euro bills for the country (none of them knew how, for that matter - though the Telegraph did provide a handy guide, for those wanting to avoid such trashy paper).

For a while, I asked a number of Germans about this, because really, the Telegraph (or at least certain of its writers) requires at least simple scrutiny before enjoying the distortion which is so cleverly presented. And even now, in the waning days of 2011, I have yet to experience anyone, anywhere in Germany looking at their banknotes, then quietly returning or rejecting the inferior ones. As for the coins - well, it is very simple to tell where euro coins come from, but no one cares - maybe the quality of the metal convinces everyone that they are all equal in value.

Not that Ambrose Evans-Pritchard isn't interesting to read - much like Kunstler, the pleasure isn't really in the ideas or the selection of information, but in his style (not many people can be so negatively bombastic so consistently). His style is about impending distaster, a style that like Kunstler's, might finally turn out to be accurate in the end, while ignoring every single prediction that was simply wrong. Both are far too big picture to care about any details, except for those that are woven into the pre-determined narrative.

A style that works best when not regurgigating press releases, like this one -
'In a report entitled "Worst-case debt scenario", the bank's asset team said state rescue packages over the last year have merely transferred private liabilities onto sagging sovereign shoulders, creating a fresh set of problems.

Overall debt is still far too high in almost all rich economies as a share of GDP (350pc in the US), whether public or private. It must be reduced by the hard slog of "deleveraging", for years.

"As yet, nobody can say with any certainty whether we have in fact escaped the prospect of a global economic collapse," said the 68-page report, headed by asset chief Daniel Fermon. It is an exploration of the dangers, not a forecast.

Under the French bank's "Bear Case" scenario (the gloomiest of three possible outcomes), the dollar would slide further and global equities would retest the March lows. Property prices would tumble again. Oil would fall back to $50 in 2010.

Governments have already shot their fiscal bolts. Even without fresh spending, public debt would explode within two years to 105pc of GDP in the UK, 125pc in the US and the eurozone, and 270pc in Japan. Worldwide state debt would reach $45 trillion, up two-and-a-half times in a decade. '

One is welcome to check the predictions and numbers (well, OK, 50 dollar barrel oil was off, and that gives an idea of the article's age) - after all, this is from 18 Nov 2009 - http://www.telegraph.co.uk/finance/economics/6599281/Societe-Generale-tells-clients-how-to-prepare-for-global-collapse.html

Enemies are as useful as friends, and when reading the UK press, recognizing just which paper sees itself representing a certain viewpoint is part of being able to value its reporting - the common nickname of the Telegraph speaks for itself, after all. He remains an interesting author to read - like Kunstler, few are able to make such a well stirred mixture of personal disgust and hand selected information to create their own universe.

>As for the coins – well, it is very simple to tell where euro coins come from, but no one cares – maybe the quality of the metal convinces everyone that they are all equal in value.

As long as vending machines all continue to take them, it doesn't matter if the coins were minted in Rome or Berlin.

This is an especially funny part from the Telegraph article from 2009:

"There are no grounds for panic. The Italian state is not Bear Stearns," it [the Handelsblatt] said.

Italy is no Bear Stearns indeed; it's much bigger.

"Not that Ambrose Evans-Pritchard isn’t interesting to read – much like Kunstler, the pleasure isn’t really in the ideas or the selection of information, but in his style (not many people can be so negatively bombastic so consistently). His style is about impending distaster, a style that like Kunstler’s, might finally turn out to be accurate in the end, while ignoring every single prediction that was simply wrong. Both are far too big picture to care about any details, except for those that are woven into the pre-determined narrative."

All valid comment-but AE-P has also been consistently correct about the euro and about the reasons why.

Oops - don't trust a commenter - the author of the Torygraph comment was Jeremy Warner, who is not a hard professional journalist like AEP.

Doesn't much change the tone - and the term 'eurogeddon' is clever. But this? - 'All of a sudden, the pound is the European default asset of choice.' seems to be strange, considering what the Swiss are still attempting to do - after all, for the Swiss, eurogeddon can't come soon enough. Or are we no longer talking about the Swiss franc in terms of a national currency whose issuer has the ability to print its own currency? Are we now worried that the Swiss are secret inflationists hellbent on whatever it is the Swiss are hellbent on, compared to the financial stability and probity which the UK, a shining beacon, offers to the poor Continental masses?

Sorry - sometimes, it just gets hard to keep track of all the contradictions, and remembering what needs to be forgotten or ignored because it happened a couple of months ago. Especially when doom is expected nigh, well, now. Right now - this very instant, as we speak, eurogeddon is occurring - French shoppers in Baden-Baden find themselves with nothing but confetti in their pockets, while German shoppers in Strasbourg are wailing their fate at having only German euros in hand. Dutch drivers can't pay for gas on the Autobahn, and Spanish truck drivers are no longer able to buy breakfast in France. OK, no this isn't happening - but if I would trust any newspaper in the world to report on this, happening or not, it would be the Telegraph.

We are discussing an article by Jeremy Warner, not sure why everyone thinks it is Pritchard, it is not even his style.

The reason that we are here discussing a Telegraph article on MR about what is going on in the Eurozone is because there is essentially no public debate in Germany or the Netherlands. Don't think it is because the discussion is not in that part of the German or Dutch press that is translated: there is no discussion in German or Dutch, period.

Yes, there are many angry commenters to Handelsblatt or FD articles, essentially regurgitations of debates that appeared in the US or UK weeks before.
Even on EU friendly websites like lefty A Fistful of Euros where you would expect a raging debate on the euro and what to do next, there is nothing. Kenneth Anderson ("The Eurozone Crisis Is Also a Governance Crisis — Isn’t It?" at the Volokh Conspiracy) has been bringing this up for a while - that even in EU constitutional law scholar circles there is virtually no debate on how the current crisis, and the jury rigged accomodations by for example Merkel-Sarkozy c.s. are affecting the future of EU law.

And it is the absence of any public debate in those countries that are and will be most be affected, rather than some overenthusiastic commentor from an outside countries, that should worry prior_approval and his ilk.

I need an "ilk."

'because there is essentially no public debate in Germany or the Netherlands'
Those front page articles in Die Zeit (ignore this German language link - http://www.zeit.de/themen/wirtschaft/finanzkrise/index )? They don't exist. The various German legal challenges to the euro over a decade? Never filed, and never reported on. The political manuevers connected to ensuring Bundestag approval of any changes to current German law involving eurozone rescues? Never happened.

There might not have been much debate in Germany in English, I'm willing to go that far. The debate in German has been quite extensive - and the fact that German perspective is supposedly the rock upon which the eurozone will currently founder (according to at least a certain current consensus) suggests maybe non-German speakers weren't paying enough attention.

As for the Netherlands - can't say, but then, no one in the Netherlands will be surprised to hear that Germans aren't reporting on Dutch concerns. Though now that I think about it, I haven't really read anything about Dutch concerns in English language sources either. Thinking a bit more, I can't say what the French are thinking either, for much the same reasons (well, OK, except for the fact that the overriding French interest will be in ensuring that France's overriding concern will be French interests).

The Telegraph is a generally laughable (from grins to chuckles to outright stunned amusement - like the banknote story) source of information about Germany. But then, I have one advantage in terms of judging the Telegraph's German reporting - I've lived in Germany for a couple of decades. Doesn't make the Torygraph a totally useless source of information, by any means - just a consistently distorted one. Like the idea that British pounds are currently the most coveted asset in Europe right now - the sort of opinion that plays well to a certain British audience, while being ignored by everyone else. Though I think that AEP might soon have an exclusive report on how the Swiss are shaking in their boots at the resurgence of the pound as a source of financial security as the UK reclaims the coveted crown of European safe havens. Yes, I know - they never had the crown in the first place, but why bother with persnickety details when dealing in the broad realms of fantasy.

One issue with CDS is "the empty creditor problem": a bondholder who is hedged will have no incentive to accept a haircut.

This has proved a problem in some corporate bankruptcies in the US with some hedge funds going short the stock, long the bond and hedging with CDS, and refusing any renegotiation of debt, forcing the firm into bankruptcy, and then making a ton of money (small detail: if you short a stock and it goes to zero, you don't have to deliver and you don't pay capital gains taxes it seems!).

Similarly, to make renegotiation easier, it may be best if bondholders are not hedged.
I am not sure this is true in the current instance, but that's the best argument I could come up with.

Would making "renegotiation" easier be a greater social good? It isn't entirely sad if the CDS forces corporates to acknowledge their obligations strictly.

I would be shocked to find the IRS doesn't asses a capital gains tax, or an income tax at some point in the scenario at the end of your first comment.

I'll second that, In fact, I believe in some situations you are actually taxed at the ordinary income rate.

The story doesn't sound right to me. I've heard about short investors having to scour the world to find the stock certificates of defunct companies in order to settle their short positions.

At zero value? Why would the other party demand worthless certificates?

Citation please

Tyler - as many others have pointed out, this event didn't render CDS "worthless" at all - they'll still pay out if/when Greece defaults.

The Telegraph has always been the most stridently (sometimes, viciously) anti-European Union serious newspaper in the UK. (And given how being anti-EU is pretty common in the UK, you can imagine how bad that can get).

I wouldn't bother reading it on Europe issues. It's a bit like reading a separatist group in Texas for news of mainstream US political issues.

'It’s a bit like reading a separatist group in Texas for news of mainstream US political issues.'
I used to buy The Spotlight at newsboxes in the Clarendon area of Arlington Virginia ( nice overview here - http://en.wikipedia.org/wiki/The_Spotlight )

Muckraking works both ways, after all - sometimes, you have to rake through a lot of pure sewage to discover occasional information that no one else is talking about. The Telegraph is not really quite at the Spotlight's level - but when it comes to EU coverage, many of the same filters and perspectives are firmly in place in terms of how information is presented to a set of readers that pay to have their biases shaped and confirmed in an endless loop.

At some point, the Telegraph's generations long crowing about the EU/EC/EEG being a nefarious plot doomed to failure will at least be accurate in terms of the EU failing (as it will, of course - a simple banality, after all - much like the disintegration of the British Empire, though the Telegraph can be counted to ignore that point with a stiff upper lip of truly immense proportion). Until then - well, the EU seems remarkably impervious to caring about whatever the Telegraph thinks about it. However, in the Telegraph's defense, it is in no way a concern troll - it wants the EU buried, and will rejoice when it occurs. Honest haters, much like the merry band of scum that produced the Spotlight, have their place in gathering perspectives concerning the world we share. Including being able to discover what the obtuse and the hate filled believe.

"At some point, the Telegraph’s generations long crowing about the EU/EC/EEG being a nefarious plot doomed to failure will at least be accurate"

The Torygraphs fear is NOT that the EU will be a "failure", its fear is that the EU will be a "success" (in terms of Ever Closer Union) and thus the UK will finally be absorbed into a European superstate by stealth and against the wishes of the people of the UK.

That the Euro would come to this has been predicted since Maastricht, unfortunately the EU elite don't really give a sh*t about the poor people who will have to shoulder the real burden of this financial disaster.

Here is an example (just ran across it, actually) of just how well the Telegraph handles reporting in other European countries. An example that just might resonate with a number of readers here, from the very first of the article -
'The 30-year-old "libertarian" and part-time high-class prostitute named Florence has lifted the lid even further on the apparently insatiable sexual appetite of the one-time French presidential favourite, which led to his downfall.'
http://www.telegraph.co.uk/finance/dominique-strauss-kahn/8896606/The-French-call-girl-the-11-orgies-and-Dominique-Strauss-Kahn.html

Of course, the French word 'libertine' ('sybarite' works adequately in this context) is not accurately translated as 'libertarian,' not that the Telegraph bothers itself with such persnickety details. But it does provide the sort of example of Telegraph reporting in terms of other European countries which many readers of this blog can judge for themselves in tems of the rigor applied to its European reporting.

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