Greece Only Paid 0.015% For The Big Swap

I'm surprised that Greece paid a really tiny fee to its bond swap advisors.  I'd like to know how they got away with such a tiny payout given the protracted length of the negotiations, epic deal size, and complexity of the offer.  There's more to this than meets the eye.  I wonder whether Lazard Freres stands to make anything on CDS payouts if the swap unravels.  Greek elections will put that to the test.  

The Limerick of Finance for 03/11/12

The swap of Greek debt has just passed
Some hedge funds no doubt took a blast
Yet favorites remain
Are investors insane?
Their swap bets could unravel fast

ISDA Ignores CDS Trigger From Greek Default

There are no surprises in the transition from the rule of law to the rule of money.  Those who possess money decide how contract law will be interpreted and enforced.  The ISDA determined that Greece's debt exchange with forced principal cramdowns and term alterations does not constitute a default.  This gross misreading of CDS terms is purely intentional.  This will prove fortunate for some counterparties whose CDS payouts will not be triggered.

There is no need to wonder why some international financial leaders are supremely confident that Greece's bond swap will succeed.  They had little doubt that the ISDA would render a friendly decision.  There is little doubt that global financial elites will keep ignoring rules and laws they find inconvenient.

Consider how American policyholders would feel if insurance companies decided that this week's losses from storms and tornadoes did not constitute loss events.  The insurance companies, in a nation subject to the rule of law, would face class action lawsuits from aggrieved homeowners who would win big settlements.  In neofeudalism, the insurance companies would survive because the losses are limited to a small number of policyholders in politically unimportant areas.  The insurers would also be able to send goons to threaten any policyholders who complain.

The ISDA's decision is not far removed from something a king would do to a feudal subject just for sport.  Expect more lawlessness from financiers who pay to write laws.  

Not A Silver Lining After All

The Journal has this to say about credit default swaps:

“If you are looking for a silver lining in these findings, it seems that most institutions think we are currently in the most dangerous period for global financial-services firms,” Feenstra said. “Perhaps if the markets can make it through the next six months, the level of pessimism may begin to subside.”

I never expected to see the Friedman Unit make its appearance in financial commentary. I thought it applied exclusively to foreign affairs. Its use in this context implies that it is appropriate for measuring the progress of all manner of debacles.

The salient point here is that "most institutions" are barely competent at judging the risk on their own balance sheets. I for one do not expect them to be any more skilled at judging risk for the market as a whole. At any rate, if we are in fact in the most dangerous period for the market, doesn't that imply that a crash in equities is imminent? Don't hold your breath waiting to hear that from the Journal.