When the banks which hold 97% of the CDS’s on the bonds about to be defaulted on decide it isn’t. I refuse to even apologize to The Riddler for that because as unfunny or uninteresting that joke was it is even less funny than the events unfolding around Greece and the will they / won’t they default craziness that is happening.
Today Standard & Poor’s downgraded Greece again, the second time this month, to ‘Selective Default’ which, of course, means that ISDA will categorically not declare the situation a default as that would trigger enough CDSs to take down a number of major banks, which has been the reason why this has dragged on as long as it has. Zerohedge has the low down on what happens if Greece fails to secure enough swaps of old bonds for the newer bonds:
Translation: Greece better have that PSI in the bag or else the “Selective” goes away and “Greece would face an imminent outright payment default.” Our question for former Goldmanite and current ECB head Mario Dragi: does the ECB allow defaulted bonds to be pledged as collateral within the Euro System?
The final paragraph from S&P’s statement is the most telling, frankly:
If Greece were to withdraw from eurozone membership (which is not our base-case assumption) and introduce a new local currency, we would reevaluate our T&C assessment on Greece to reflect our view of the likelihood of the Greek sovereign and its central bank restricting nonsovereign access to foreign exchange needed for debt service. Contrary to the current case, in this scenario, the euro would be a foreign currency, and the Bank of Greece would no longer be part of the European System of Central Banks
While that is not S&P’s base assumption this post by Zerohedge lays out the flow chart of events for Greece’s outcome… by the way the probability of full default and CDS trigger even after this agreement is 73.4%
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