Greece Downgraded Again, Credit Default Swaps Soar

Greece has been downgraded to CCC, a drop of three credit rating grades, by the almighty S&P credit ratings agency.

Greece had its credit rating cut three levels by Standard & Poor’s, which branded the nation with the world’s lowest debt grade and said a restructuring looks “increasingly likely.”

The move to CCC from B reflects “our view that there is a significantly higher likelihood of one or more defaults,” S&P said in a statement today. “Risks for the implementation of Greece’s EU/IMF borrowing program are rising, given Greece’s increased financing needs and ongoing internal political disagreements surrounding the policy conditions required.”

The problem now is soaring credit default swaps:

Credit-default swaps on Greece, Ireland and Portugal surged to records on concern European governments’ struggles to resolve the deficit crisis will threaten their ability to pay their debts.

Swaps on Greece jumped 47 basis points to an all-time high of 1,610 as of 5:30 p.m. in London after Standard & Poor’s downgraded the nation, according to CMA. Contracts on Ireland soared 27 basis points to 740, Portugal climbed 22 to 764 and the Markit iTraxx SovX Western Europe Index of swaps on 15 governments jumped 7 basis points to 218, approaching the record 221.75 set Jan. 10.

Remember those from the financial crisis? Credit default swaps are insurance policies, anyone can buy, which pay out when a nation defaults.

Greece loses, they win. The problem is those who issue CDSes will have to pay out. Remember AIG?

We've already said Greece needs to restructure it's debt, but the EU and ECB won't allow that because it would hurt the banks.

Now a BIS report shows U.S. Banks are heavily exposed to the European credit crisis because they have issued credit default swaps:

it seems that approximately 30% of total potential exposures to debt from the PIGs are covered by default insurance (see the figures in red). Put another way, if one of the PIGs defaults, creditors who actually hold bonds from that country will absorb about 70% of the losses, while agents (primarily banks and insurance companies) that sold insurance against the possibility of default will have to cover the remaining 30%. That's not a trivial amount.

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BIS report, analysis on U.S. bets on PIGS

This blog post went through the nitty gritty on CDS bets on PIGS, i.e. Greece risk of default.

It's very well done, with tables taken from the report, summing up the BIS tables.

If you think the crisis is just happening in Greece, far away from the United States, think again.

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So How Much Will US Taxpayers Pay This TIme?

I feel the collective pocket about to be picked -- again.

Can we finally write a law that puts an end to this stupid insurance?

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we wrote about CDSes and many others have as well

But the Banksters were bound and determined to keep their credit default swaps and the model is insane, it allows anyone to trade, without any risk or tie in to the underlying asset. Mathematically it's Economic Armageddon waiting to happen, or "Black Swan".

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Writing it's the easy part

I think the legislation needed has been drafted and is there on the shelf if ever Congress would wake up to its collective responsibility to the nation, to the people, to common decency, and, to the past and the future ...

It's enacting sane legislation -- that's the difficulty.

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Greece is Imploding stocks down, debt financing skyrocketing

No surprise, Business Insider seems to be running an update.

Why they don't just restructure this debt and get over it is all about the banks and their lovely CDSes, never should have happened in the first place.

Austerity means stickin' it to the middle classes and workers, EOM.

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S&P pleaded 'no contest' to fraud charges in CT

They're disgraced but it doesn't matter. The financial markets just roll along as thought there's nothing happening.

How about a downgrade for Goldman for such lousy advice. They're a toxic asset in drag.

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this is a story S&P

Here they are, downgrading the United States while pleading no contest in rating CDOs. Wunderbar!

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oh greece!

Greece is in some serious need of something. I think the global market is gonna get hit pretty hard in the next year.

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Hi, I'm Ed. Nice to meatchew.