The folks at Pragmatic Capitalism (PragCap) posted a blog today by Walter Kurtz titled “Time to Stop Fearing the Greek CDS Bogeyman.”  The article essentially presents an argument that the market shouldn’t be overly concerned about a potential significant payout by writers – banks, insurance companies – of credit default swaps (CDS) on Greek sovereign debt.

Part of this topic relates to Greek lawmakers wanting to retroactively change the existing Greek-law bond agreements by including a collective action clause (CAC) that would enable a supermajority of bondholders to force a debt restructuring on all holders.  S&P wrote that it would consider this amendment an action of default, hence triggering a default and a CDS payout.

PragCap includes some useful charts from SoberLook.com and outlines four points regarding why a CDS trigger would not be a concern.  The first and last points relate to CDS being marked to market.

This argument may be valid if most or all of the CDS written were done so prior to mid-2010 when laws were imposed for writers of derivatives contracts to post collateral.  However, these laws were not imposed retroactively.  We can thank Warren Buffett, as he lobbied Congress in 2009 and 2010 against making this law retroactive, which is fair (unlike the CAC insertion mentioned above).  Note, however, at the time Berkshire Hathaway had $63B+ of derivatives contracts of which it was at risk of being asked to provide collateral of between 10% and 20% of the total amount, or roughly $7B to $14B of collateral.  Nevertheless, since the law is not retroactive, Berkshire doesn’t have to post collateral for these contracts, which are mostly index derivatives, incidentally.

Our sense is that a lot of the outstanding Greek sovereign debt CDS were written prior to the collateral posting requirements.  Ergo, the writers of said CDS – banks, insurance companies – have not posted collateral, just like Berkshire Hathaway has not posted collateral for its derivatives written prior to the change in rules. 

We shall see…

Below are links of an eclectic variety.

Woolly Mammoth to Be Cloned – Discovery News
Within five years, a woolly mammoth will likely be cloned, according to scientists who have just recovered well-preserved bone marrow in a mammoth thigh bone. Japan's Kyodo News first reported the find.

A Government Censors a Blog – techdirt
Be thankful for your liberties and freedoms, as some governments secretly censor information (in this case, a blog) without apparent due process.

Expose an Alleged Financial Crook and be Fined Millions – Seattle Weekly
Apparently bloggers need to be careful writing about crooks and ponzi schemes.  The unintended consequences of the Court's actions will likely be more anonymous, offshore blogging.

Aunt Midge Not Dying in Hospice Reveals $14B Market – Bloomberg
When private equity firms salivate about for-profit hospice investments, what is the probability that Medicare (i.e., taxpayers) is being pillaged and plundered?

Stephen Hawking on Time Travel - Letters of Note
This one is short and comical.

Please reference “Iran's Kish Oil Bourse Begins Oil Transactions in Euro and Dirham” dated 19 August 2011 from Hamsayeh.net.

Having an oil exchange that trades in multiple currencies, including a basket of global currencies, provides an alternative in the marketplace for those who don’t want to rely on any specific fiat currency (a currency not supported and backed by some tangible commodity).

Rolling Stone Magazine is becoming a source for provocative investigative journalism. 

Here is its most recent article (17 Aug. 2011) titled "Is the SEC Covering Up Wall Street Crimes?" by Matt Taibbi.

Also, here is a related Rolling Stone's article by the same author from earlier this year (16 February 2011) titled "Why Isn't Wall Street in Jail?"

Enjoy.

Below is an infographic highlighted by Grist.com depicting the cost of eating healthily. This can also be explained from subsidies for junk food (high calorie, low nutrition) that aid and abet the perpetuation of a health care provider complex.

Or, what comes around, goes around: Please reference "Hungary Destroys All Monsanto GMO Maize Fields" as well as the links regarding the investigations by the SEC.  The latter is likely just theater to appease the locals (U.S. citizens and farmers); the former has teeth.  Nevertheless people globally have had enough of the atrocious behavior and products (pesticides, herbicides, genetically modified whatnots, carcinogens) from Monsanto and some other similar companies, and their enabling politicians.  And, some international governments, fortunately, are responding accordingly.  

  Remember the good old days of leveraged buyouts (LBOs)?  

You know, buy control of a company by using a pile of debt, firing a lot of employees, and selling some hard assets.  Then, use the cash flow to pay capital providers and financial sponsors of the transaction through principal payments, interest and special dividends.  In the medium- and long-term, this behavior tends to destroy (read: bankrupt) companies due to reasons such as not adequately investing in maintenance and human capital and necessary SG&A.

Now, apply the old LBO model to a sovereign nation and what do you get?  [Well, besides the decline and fall of the Roman Empire.] You get a lot of debt, misallocation of taxpayer dollars to things like subsidies (corn, sugar, etc.), excessive global military presence, and lack of infrastructure maintenance.  

That said, an article titled “Life in the Slow Lane” by The Economist (April 30, 2011) indicates a red flag of not maintaining one’s infrastructure.  I suppose this is another data point that complements our blog from March 2011 titled “Remember the Off-Balance Sheet Shenanigans of Enron?”

Although we at Coventry League try to think independently more often than not, we are aware that many prefer to outsource their critical thinking to broad frameworks such as political parties and whatnot.  Accordingly, below is a chart comparing the economic recession during the Reagan era to that of the Obama era (obviously still in progress).  The entire article titled “A Tale Of Two Recessions And Two Presidents” can be found at Investor's Business Daily.