True or False ?

[AlfredJPruffock]

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.... a readers comment from today Telegraph online - if True - it could explain why the UK Government has been so insistent on unity within the Euro - what does the CUK economists think - True or False ??




The City is responsible for the issuing of nearly half of all the CDS contracts in the world.

The nature of CDS contracts is that each debt is insured at least ten times.

This means that if the underlying debt defaults, the sellers of CDS contracts will have to pay out ten times the value of the defaulted debt.

If Greece defaults on its 320 billion euro debt, it could result in CDS claims for 3.2 trillion euros.

Since nearly half of all CDS's are issued from London, the City could be liable to pay out at least 1.5 trillion euros.

In the unlikely event of an Italian default on its 1.8 trillion euro debt, the City could be faced with obligations of almost 9 trillion euros which is almost 8 trillion pounds.

On top of that there are the effects of contagion on other eurozone members, which could more than double City losses to around twenty trillion pounds.

[Ruprect]

This is frm a readers comment from today Telegraph online - if True - it could explain why the UK Government has been so insistent on unity within the Euro - what does the CUK economists think - True or False ??




The City is responsible for the issuing of nearly half of all the CDS contracts in the world.

The nature of CDS contracts is that each debt is insured at least ten times.

This means that if the underlying debt defaults, the sellers of CDS contracts will have to pay out ten times the value of the defaulted debt.

If Greece defaults on its 320 billion euro debt, it could result in CDS claims for 3.2 trillion euros.

Since nearly half of all CDS's are issued from London, the City could be liable to pay out at least 1.5 trillion euros.

In the unlikely event of an Italian default on its 1.8 trillion euro debt, the City could be faced with obligations of almost 9 trillion euros which is almost 8 trillion pounds.

On top of that there are the effects of contagion on other eurozone members, which could more than double City losses to around twenty trillion pounds.

Move along, nothing to see here

[doodab]

It's hard to say as the market is unregulated, so absolutely nobody knows with any accuracy exactly what the value of CDS related to a particular underlying asset is. Individual banks and funds will have a view of their own position but there is no detailed view of the whole system.The BIS have some interesting (and slightly terrifying) numbers but they aren't detailed enough to make these sorts of estimates with any certainity. What they do say is that the nominal value of all the oustanding CDS (for both sovereign and non-sovereign debt) in the world is about $29 trillion. I'd expect the fraction of that linked to Italian debt to be a fairly small fraction as Italy's debt is a fairly small fraction of the total debt in the world. So £20 trillion seems a bit on the high side.

The other question is who holds the cds?

[eek]

It's hard to say as the market is unregulated, so absolutely nobody knows with any accuracy exactly what the value of CDS related to a particular underlying asset is. Individual banks and funds will have a view of their own position but there is no detailed view of the whole system.The BIS have some interesting (and slightly terrifying) numbers but they aren't detailed enough to make these sorts of estimates with any certainity. What they do say is that the nominal value of all the oustanding CDS (for both sovereign and non-sovereign debt) in the world is about $29 trillion. I'd expect the fraction of that linked to Italian debt to be a fairly small fraction as Italy's debt is a fairly small fraction of the total debt in the world. So £20 trillion seems a bit on the high side.

The other question is who holds the cds?

From what I remember reading years back banks find it issue to offload risk by writing a fresh cds instead of paying off the old one. the worries some people have is that if a bank ends up in administration the profitable cds will be called in but the losing ones will not be paid out rapidly moving the entire banking industry into bankruptcy.

I'm not sure how much truth should be attached to the above but it does explain why cds contracts are far greater than the actual amount of debt.

[moorfield]

The IBs (or at least the one I work at) aren't touching CDSs on Greece or Italy or suchlike with a bargepole their risk bods won't allow it. Contrary to many I don't see them as "evil" financial instruments at all and CDS market regulation / standardisation has improved hugely over last few years.

[Old Greg]

The British government has a clear and unambiguous duty to the capitalist class to ensure that the British taxpayer borrows money from banks to us dhand over to Eurozone governments so that they can repay theit bad loans to the same banks (and by extention to debt insurance holders) that British taxpayers are borrowing from in the first place. I have no doubt that our leaders will fulfil their duty.

[doodab]

I'm not sure how much truth should be attached to the above but it does explain why cds contracts are far greater than the actual amount of debt.

I'm not sure that the amount of CDS outstanding is greater than the amount of debt. I think the ratio is about 3:1 the other way.

[AlfredJPruffock]

It's so satisfying to see A Cunning Plan coming to fruition.

You are doomed, Earthlings, The Great & Mighty Evil One has cooked your geese.

<cue manic laughter>

And no sign of that damned police box coming to the rescue.

Yes - CDS will be the Death Star for the Earthling Economy - now then - where did I put the keys for the Tardis - come on - who has them - look this isnt funny ...

[Mich the Tester]

?????????????????????????????????????????????????? ?????????????????????????????????

.... a readers comment from today Telegraph online - if True - it could explain why the UK Government has been so insistent on unity within the Euro - what does the CUK economists think - True or False ??




The City is responsible for the issuing of nearly half of all the CDS contracts in the world.

The nature of CDS contracts is that each debt is insured at least ten times.

This means that if the underlying debt defaults, the sellers of CDS contracts will have to pay out ten times the value of the defaulted debt.

If Greece defaults on its 320 billion euro debt, it could result in CDS claims for 3.2 trillion euros.

Since nearly half of all CDS's are issued from London, the City could be liable to pay out at least 1.5 trillion euros.

In the unlikely event of an Italian default on its 1.8 trillion euro debt, the City could be faced with obligations of almost 9 trillion euros which is almost 8 trillion pounds.

On top of that there are the effects of contagion on other eurozone members, which could more than double City losses to around twenty trillion pounds.

If this is true, but I don't know if it is, then it seems to me to be a design fault in the CDS. In fact, it seems to me to be rather silly. But then I don't know what I'm talking about anyway as I don't have any experience of losing trillions of euros of other people's money.

[Sysman]

The real question is "Who stands to benefit?".

I haven't a clue, but it would be nice to know.