By Barry Ritholtz, The Big Picture
In this week’s Barron’s, Alan Abelson looks askance at the non-default default in Greece.
All bombast aside, what makes this issue so fascinating to me is not whether or not Greece has or has not technically defaulted. Rather, it is that there is a committee of conflicted interested parties rendering a verdict on that issue.
Funny, that sort of group declaration is not required when a payout determination occurs when a futures contract or an option must settle.
No committee decision is required. Which (again) is why Credit Default Swaps sound a lot more like Insurance than they do other tradeable assets.
Regardless, here is Barron’s:
“Rogues lying wasn’t the problem with another recent instance of March Madness on foreign shores. A panel of five investment firms and 10 banks chosen by the International Swaps and Derivatives Association has told the world it need not fear that Greece’s failure to pay its humongous debts would trigger payments mounting into the billions of dollars on those instruments of mass destruction, credit-default swaps, thanks to those 15 worthies unanimously declaring such losses are not “a credit event.”
Keep reading: When is a Debt Default not a “Credit Event?” | The Big Picture.
