Banks Bet Greece Defaults on Debt They Helped Hide

[Joanne98]

Source: NYT

Bets by some of the same banks that helped Greece shroud its mounting debts may actually now be pushing the nation closer to the brink of financial ruin, Nelson D. Schwartz and Eric Dash report in The New York Times.

Echoing the kind of trades that nearly toppled the American International Group, the increasingly popular insurance against the risk of a Greek default is making it harder for Athens to raise the money it needs to pay its bills, according to traders and money managers.
These contracts, known as credit-default swaps, effectively let banks and hedge funds wager on the financial equivalent of a four-alarm fire: a default by a company or, in the case of Greece, an entire country. If Greece reneges on its debts, traders who own these swaps stand to profit.

“It’s like buying fire insurance on your neighbor’s house — you create an incentive to burn down the house,” said Philip Gisdakis, head of credit strategy at UniCredit in Munich.


Read more: http://dealbook.blogs.nytimes.com/2010/02/25/banks-bet-greece-defaults-on-debt-they-helped-hide/

[mbperrin]

1. This is the way it is designed to work - it is a moral hazard.

No one without an insurable interest should be allowed to "insure" anything. It's pure gambling, and just like gambling, leads to criminal attempts to control outcomes and therefore control payouts.

Like if too many people bet on one horse to win, I'd do well to have that horse drop dead if I'm the bookie. So I keep the money of all those who thought the horse was a winner, and by taking life insurance on the horse beforehand, I also collect that money.

Thugs, criminals, thieves. That's what this whole system is, and that's why the unceasing patter - any good con man will tell you to keep talking and throwing in good sounding words to keep the mark there.

[AngryAmish]

3. Why do you think George Soros is so rich?

Someone has to short currency or else it gets artificially inflated.

[Hosnon]

6. I agree 100%. For the same reason I can't take out a life insurance policy on you

(or, more to the point, on someone I hate), no one should be allowed to bet on and make a profit from the collapse of a company or country.

I absolutely despise banks now. Personally, that is the lasting legacy of this entire mess.

[BeyondGeography]

2. Barack calls Blankfein a savvy businessman

He's a fucking crook, Barack. Wake the hell up, man.

[Odin2005]

4. This shit is disgusting.

:grr:

[benld74]

5. Banks are NOT banks ANYMORE.

THey are gambling tue and simple. That is what CDS are. They should and need to be outlawed.

[Barack_America]

8. They're bookies. nt

[SOS]

9. The gambling bucket shops

which caused the collapse of 1907 were re-legalized in 2000 after 93 years.
A catastrophic decision.

[SOS]

7. A European Spring preview, courtesy Goldman Sachs et al

Athens, February 24, 2010