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Sunday Times STLive By Jeremy Thomas
Bull's Eye, 2012-03-04

The bankruptcy that dare not speak its name

Jeremy Thomas
Image: Sunday Times

The chortle of the week comes courtesy of the International Swaps and Derivatives Association, a cabal of chums determined not to share their bag of plums.

On Thursday the ISDA said no, voetsek, it would not declare that an "event" had occurred with respect to outstanding credit default swaps held against the Hellenic Republic.

Credit default swaps have famously been likened to buying insurance on your neighbour's house. Greece's house burnt down at least three years ago - yet the ISDA refuses to acknowledge it ever happened.

If you had bought a policy that promised to cough up if the guy next door fell asleep with a cigarette and a bottle of bourbon in his hand, and you didn't receive your ill-gotten bonanza, wouldn't you feel a trifle peeved?

The ISDA's blogger is a vicious piece of work who fears no ill from the high and mighty of the media. This week s/he had a full go at the Washington Post and the Wall Street Journal for daring to challenge the god-like judgment of the ISDA.

What does the industry body have to fear? Well, here it gets sticky. The organisation itself is made up of members of the chaste banking class that never, never, your honour, had a thing to do with the current credit crisis. So, never mind the rabble clamouring for some kind of justice, or retribution, the high table of global finance simply decrees that everything's still just dandy.

In a missive on Friday, the ISDA said its "determinations committees" are made up of 15-member panels of representatives from banks and investment firms. A supermajority (12 of 15) of each committee's members is required to determine whether an "event" has or has not transpired.

So they all duly sat down this week and determined that Greece has not, in fact, failed to honour its debt-repayment obligations and that anyone saying otherwise is talking tripe.

Can you believe this? Greece has been demonstrably bankrupt for many years and holders of its sovereign bonds will still be waiting on Doomsday to be repaid. Proof of how rotten Greek government bonds are came this week with the news that one-year paper cannot attract buyers despite offering nearly 1000% in interest.

The ISDA's members are terrified. It is not because of the outstanding sum of the credit default swaps. We are told they are not large enough, in themselves, to cripple any one bank. It's not the "insurance policies" we have to fear, it's the underlying debt itself.

Quite apparent, through the ISDA's bluster, is that if they give in and declare Greece to be in default, the dominoes will start to fall in ominous procession. Never mind Portugal and Italy (or even France, Britain and Germany), the real horrors lie in the wretched balance sheets of Japan and the US. Should the big boys be exposed as welshers, we might as well declare the end of this old capitalist experiment and start trading beads.

Fear not, comrades.

This week the US Fed's Helicopter Ben said there is no end in sight for the amount of dollars he's willing to drop to keep the game of musical chairs going. The European Central Bank then poured another à500-billion on the fire (or is it ashes?).

Where do they get the money from? It's not as if it's real money, is it? Not like it's been earned by anyone and lent to these guys. It just sort of gets whistled up and handed out to those deemed most deserving. And who are those people? Not us, my chinas.

There's a song on the new Tom Waits album that goes: "Well it's hard times for some/For others it's sweet/Someone makes money when there's blood in the street."

Followed by the kicker: "Well we bailed out all the millionaires/They got the fruit/We got the rind."