Calls to curb CDS gamblers as Greek crisis continues

[dkf]

Traders in credit default swaps are hoping that countries default on their debt, say experts, and the market needs more regulation

Tougher regulation is needed on the derivatives market to curb the activities of traders gambling on the downfall of sovereign states such as Greece, politicians, investors and bankers have warned.

Fresh calls for controls on the market for Credit Default Swaps (CDSs) – a type of insurance against a nation defaulting on its borrowings – came after the latest European turmoil showed again that these unregulated instruments can worsen a financial crisis.

The CDS markets were in turmoil last week as doubts mounted over the ability of Greece, Portugal and Spain to pay their debts. Headlines about the sudden jump in the price of CDSs increased market uncertainty and panic. This pushed down government bonds, forcing countries to pay more for their borrowings. Spain, for example, recently sold bonds paying an interest rate of 2.6% – more than the 2.1% it had to pay in December. This difference cost the country about €12m (£10.4m).

US analyst James Rickards, a former general counsel of hedge fund Long Term Capital Management, described the CDS market as toxic – pointing to its lack of transparency and the fact that the traders of the insurance have no personal interest in the contracts. Their position could be compared to that of a neighbour who bought insurance on your house – which is forbidden, as it would provide him with an incentive to want your house to burn down, or even to attempt arson.

"They're just betting – why should we have instruments where the hope is for the failure of a sovereign state? These are not financial games, they have a serious detrimental impact on the citizens of those countries," said Rickards, a director of Virginia-based Omnis.

http://www.guardian.co.uk/business/2010/feb/15/credit-default-swaps-regulation

[BeFree]

1. Question

IIRC Greece has or did have the richest individuals in the whole world.

Is there not enough rich to go around and some of Greece is now going down the tubes?

[dkf]

2. Slate had an article on Greek shipping magnates

http://www.slate.com/id/2124542/

Greeks still profit handsomely from maritime trade, but they've fallen from the ranks of the world's wealthiest shippers. According to Forbes, the richest sea traders in the world include the nonagenarian Dane Maersk Mc-Kinney Moller ($5.3 billion), the Norwegian John Fredriksen ($3.4 billion), and the Taiwanese magnate Chang Yung Fa ($1.3 billon). Not a single Greek shipper appears on the magazine's tally of billionaires. (Paris Latsis' uncle Spiro does make the list, but at this point the family's wealth mostly comes from banking and real estate.)

The era of the celebrity shipping magnate may soon be over. Several high-profile shippers have recently died, like the Norwegian Arne Naess Jr. (who was once married to Diana Ross). And shipping companies are now more likely to be incorporated and run by CEOs rather than playboy private owners. The descendants of yesterday's magnates such as Onassis and Niarchos tend to get more publicity in the tabloids than modern tycoons like Maersk Mc-Kinney Moller and Chang Yung Fa

[upi402]

3. 2 late and 2 little

:hi: bye bye to democratic democracy
sadly and unnecessarily.

[dkf]

4. It has to be fixed sometime.

Question is what is taking so long. The priorities are certainly screwed up.