Who owns credit default swaps on greece

CDS is often misunderstood. An investor may hold Greek sovereign debt long and may want to fully or partially insure against default on the debt. By limiting or abolishing CDS, you not only decrease liquidity for investors which we know is a terrible idea , but you actually decrease liquidity in the underlying asset, in this case Greek sovereign debt. By December , CDS spreads widened dramatically. Of course, the spreads widen even more in January and February signaling the seriousness of the Greek credit crisis.

Markets reacted swiftly to the news, which indicates 1 the value of having CDS as a credit monitoring device and 2 the importance of fully disclosing the debt that a country is obligated to payoff. Financial markets evolve independently and are often hindered rather than helped by regulation.

As we know, it would be fairly easy to create a new security or instrument that would be one or steps ahead of the regulators, but provide the hedging that investors demand.

As Secretary Geithner tried to emphasize in a recent House hearing that support to Fannie and Freddie, "does not change the legal status. Treasuries, nor should it be considered sovereign debt.

I agree completely with Secretary Geithner on this score. By Marius Zaharia. Worries of a default have resurfaced as Athens is in a stand-off with its international lenders over its plans to end austerity measures agreed under its billion euro bailout deals. Investors who hold the relatively small amount of Greek government debt that remains in private hands may still get a payout if they have used CDS to protect themselves - even if Athens defaults only on repayments to the public institutions.

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The euro edged lower against the dollar while U. Treasury prices pared losses in thin trading conditions after the announcement. Approximately 93 percent of credit default swap contracts, are collateralized, meaning investors and dealers hold collateral on their books to cover potential payouts.