Monday, November 28, 2011
Friday, November 11, 2011
But jokes aside, TMM are incredulous that banks have been able to get away with selling Sovereign CDS for so long. The ill-design of the product is palpable - for it not to pay out in the event of a 50% haircut (60% in NPV terms) because the restructuring was "voluntary" is laughable. Sovereign CDS has turned out to be less useful as a hedge than a glass panel in a nudist camp. This is an exceptionally serious issue for the credit market as banks have used CDS to hedge their bond holdings, loan books and other related country exposures, particularly from CVA desks.
A glass panel in a nudist camp. That is what a Soverign CDS is.