February 28th, 2012
03:49 PM GMT
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(CNN) - The fact that Greece is not officially regarded as defaulting is ridiculous – and how anyone can say the 70% net debt “haircut” for the private sector is truly voluntary simply beggars belief.

But now that Standard and Poor’s has downgraded Greece’s credit to “selective default,” that part of the fig leaf has been stripped away – and the International Swaps and Derivatives Association (ISDA) must declare that a “credit event” has now happened in Greece if the organization is to maintain any shred of credibility.

A “credit event” will enable anybody who’s holding Greek debt to enact a credit default swap (CDS), a form of insurance that investors use to protect against default. For these insurances to pay out, there has to be a “credit event.”

When the Greek parliament decided unilaterally to change the terms of its bond agreements with investors, that was the “credit event,” and now the ISDA must act.

But if they do not declare a “credit event,” I’m at a loss to know whether anything other than an Argentinian or Russian default counts. Greece has defaulted, it is as simple as that.

CDS was a major contributor to the global financial crisis in 2008, but it won’t be financial Armageddon this time around – the European Financial Stability Facility stands ready, the European Central Bank is pumping money into the banks, and the liability for payouts on CDS related to Greek bonds is a relatively manageable $3 billion.

Every bank has now worked out what its CDS losses or gains will be. It is no longer an unexploded bomb, but it does need to blow up.

I cannot imagine the ISDA won’t declare a credit event, and it will be the first time a European country has officially defaulted in decades. It’s time to get it over with.

soundoff (20 Responses)
  1. Bloatee

    Sadly Mr Quest is confusing de facto with de jure..Greece has not yet defaulted , it is merely in the process of doing so. The ISDA committee is bound by a fixed set of rules which allow little interpretation. There is no doubt whatsoever that there will be a 'Credit Event' as far as Greece is concerned, most likely once the debt exchange becomes involuntary around March 8th.

    February 28, 2012 at 4:12 pm |
  2. Anonymous

    In order to save my family, I have to give up my dreams...
    In order to save Murdoch, UK has to give up BP...
    In order to save the "friends" of Israel, we ALL have to give up paying fair gas price...


    February 28, 2012 at 6:55 pm |

    that Standard and Poor’s
    has downgraded Greece’s credit

    February 28, 2012 at 8:30 pm |
  4. Simon

    Indeed Greece has defaulted, and yes they ISDA should say so, but assaults on the English language are commonplace now. Somehow modern definitions of major events have moved the the empirical to the political. It's not a war if we don't call it a war, it's not a defeault if we don't call it a default, and increasingly sophisticated and elaborate euphemisms permeate government explanations of simple and obvious truths.

    February 29, 2012 at 12:23 am |
  5. Floyd Burgoz

    Ah, the Websters dictionary for Default just landed in the dust bin.

    February 29, 2012 at 5:28 am |




    February 29, 2012 at 6:05 am |
  7. OSKAR

    The law is in place to round up the crooks. In a short time all those who stole the money will be brought to explain and then jail. It had to happen. The rest of Europe is exactly the same. They must learn fast if Europe is to succeed.

    February 29, 2012 at 7:25 am |
  8. Kme

    They defaulted, period. Now, the creditors are immediately giving them a new loan which no person in the real world would ever get so fast. Treachery in the treasury.

    February 29, 2012 at 8:12 am |
  9. jakson

    Strangest way to the marriage application


    February 29, 2012 at 8:46 am |
  10. Mogotsi Mpshane

    It is a pity the once cradle of western civilisation has been reduced to this

    February 29, 2012 at 9:25 am |
  11. suomesta terkkuja

    Häpeän Suomen hallituspuolueita jotka osallistuvat tukipaketteineen Kreikan tuhoamiseen. Kreikka on D. Sen elinmahdollisuudet on viety. Sitä on lainoitettu vaikka on tiedetty missä tilassa se on.
    EUROOPAN UNIONI on hirviö jonka tehtävä on systemaattisesti tuhota euroopan maita. Suomessa on puolue joka vastustaa ankarasti tätä toimintaa. Minä pauhaan pää hiestä märkänä vastaan meidän hallitusta ja sen toimia.

    February 29, 2012 at 10:53 am |
  12. DrDDR

    So now we know that CDSs on government debt don't work very well.
    Question is will it kill the CDS market if buyers realise they are not worth buying.
    Another question is that it will presumably mean increased borowing costs for all governments, and a less liquid market once buyers realise that the risks cannot be effectively insured.

    February 29, 2012 at 2:55 pm |
  13. DIMI100

    If Greece isn’t a 'credit event,' what is?
    The answer is simple it is a country with 10 million PEOPLE

    February 29, 2012 at 3:42 pm |
  14. Annamaria Capicchioni

    The European Union should have never accepted Greece. The Greeks have always lived above their means. People were retiring at the age of 45 50, The rich do not pay taxes. Their basic income relies only on tourism. What does everybody expect?

    February 29, 2012 at 5:48 pm |
  15. JKing

    (1) The credit ratings agencies and their friends are propping up bad companies and bad countries.
    (2) Central banks were created to support the illusion countries could never go broke again.
    (3) Central banks are "printing money" by buying up both government and too-big-to-fail bank debt. Nothing has really changed since the 1930's depression.
    (4) The U.S. is in far worse shape that anyone is willing to say. There is NO way it can EVER pay off $15 trillion in debt when it only takes in $2.3 trillion a year. So, why is everyone buying U.S. Treasuries as a "flight to safety"?

    February 29, 2012 at 9:50 pm |
  16. Elchin Musayev

    Can anyone please send me Mr. Richard Quest's email? I need to talk with him about Qatar Foundation.
    All the best
    Harvard MBA student

    March 1, 2012 at 1:03 pm |
  17. Alexander the Great

    ISDA says there is NO GREEK CREDIT EVENT. Huh? Didn't Richard say that if they wanted to maintain a shred of credibility that the ISDA had to declare an event? What gives?

    Richard, please. Make the bad Greeks go away. Make the bad EU admit its currency rules are a (pretty large) waste of paper. Get a senior EU figure in the hot seat and exclaim "ARE YOU NUTS".

    Well, I guess they did just declare an event. They declared the death of common sense, the burial of truth and the perpetuation of CommEUnism.!!!!

    March 1, 2012 at 4:47 pm |
  18. BlueCollarBlueDog

    "But I don't want to go among mad people," Alice remarked.
    "Oh, you can't help that," said the Cat: "we're all mad here. I'm mad. You're mad."
    "How do you know I'm mad?" said Alice.
    "You must be," said the Cat, "or you wouldn't have come here."
    (Alice's Adventures in Wonderland, Chapter 6)

    March 9, 2012 at 8:40 am |
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    November 4, 2012 at 6:14 pm |
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    April 22, 2013 at 9:10 pm |

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