The European commission announced moves today to shore up the euro and ward off market pressure on Greece by considering a ban on complex derivatives allegedly being used to undermine the single currency.
The draconian move suggested by José Manuel Barroso, commission president, follows a joint campaign by the German chancellor, Angela Merkel, and the French president, Nicolas Sarkozy, for a prompt clampdown on credit default swaps (CDS).
Given that they\’re entirely ignorant of how financial markets work why in fuck are we giving them the power to run a continent?
From what I understand there are CDSs on some $9 billion of Greek debt. Against the $300 or $400 billion odd of debt outstanding this is pissant. Good starting point is here and search through the rest of the blog for CDS pieces.
At very best this is shooting the messenger and at worst this is astounding ignorance.
Barroso said today it was \”not justified\” to buy CDSs \”by unseen interventions on a risk, on a purely speculative basis … The commission will examine closely the relevance of banning purely speculative naked sales on credit default swaps of sovereign debt.\”
Ignorant, ignorant. A sale of a CDS is always \”naked\”. A purchase can be naked or covered, but a sale is always naked (well, it doesn\’t have to be, it;s certainly possible to hold the debt and sell a CDS on it but no one actually does that….to be boringly precise you might well find that Goldmans, as an example, both holds Greek debt and sells CDSs on it but that\’s just because Goldmans is big and does lots of things. You don\’t, as a trading strategy, hold bonds and sell a CDS.).
Market speculation against the euro was \”an aggravating factor\” in the Greek crisis, Barroso added, but conceded that Greece\’s problems \”were not caused by speculation on the financial markets\”.
Despite the criticism of the markets and the CDS crackdown led by Merkel, Germany\’s financial services regulator said it had seen no evidence of speculation against Greek bonds and no growth in the use in effect of CDSs betting on the chances of a Greek default.