According to press reports, credit default swaps protecting investors against a default on $10 billion of Greek Government bonds cost $1.9 billion this morning. At the track, they’d call it $2 billion, and start that pony off at 5 to 1.
Nobody knows how many bets have been placed, or if anyone does, he’s not talking, so we’ve no idea how much money would be lost if that country failed to make an interest payment. There are no regulations controlling derivatives, and the transactions are hidden from public scrutiny, but in the worst case, a bunch of financial institutions are in over their heads for way more dough than the bonds are worth, so half of them would fail and the other half would pay out big fat year end bonuses.
These particular bets, all of them, collect once the odds makers determine a single default on any Greek bond has occurred.
It’s 5 to 1 that this scenario will actually play out. Most of our readers have some personal knowledge of these odds. It’s all you really need to remember to understand what’s going on in the markets with this one right now.
