European Parliament Goes Bonkers Trying To Rid EU Of Speculators Betting On Greece Going Bankrupt
IT’S bad enough that we’re being ruled by foreigners but why do they also have to be either ignorant or bonkers?
The European Parliament is attempting to rid the EU of speculators betting on Greece going bankrupt, voting for a ban on the practice of naked short-selling of credit default swaps.
You what? Is it just because it’s all about money in offices that our lawmakers are so horribly ignorant?
A credit default swap is insurance. Just like house insurance: you own a house, it might burn down, so you pay an insurance company money and on the off chance that your house does burn down they will then give you lots of cash.
You own a bond, the b’stard who borrowed the money from you might go bust. So, you pay a premium to an insurer and if the b’stard does go bust, you lose all the money you lent, then the insurer sends you a nice fat cheque to replace it. This is called a CDS.
“Naked” selling is when you sell something you don’t own. Obviously, in the above the insurance company doesn’t own the same bond you do (just like your house insurance company doesn’t own a house). He’s selling you insurance on your bond, nothing else (think it through, if he did own the same bond and it defaulted then he’d have lost money twice, one lot he pays to you and the other loss on his own holding of the bond).
So all CDS sales are naked sales. So banning naked sales of a CDS means banning all CDS.
The problem, says Canfin, is where investors buy up CDSs without having any exposure to Greek sovereign bonds themselves, making money without taking any risks.
Fortunately, cretin is the same in English and French (for M. Canfin is indeed French). Even if you are buying, not selling a CDS, you are still taking a risk. You pay a premium: if the bond doesn’t default then you’ve lost that premium. Just as if your house doesn’t burn down then you’ve lost what you paid the insurance company. By insuring against something you’re taking the risk that the thing you’re insuring against doesn’t happen.
Seriously, how did it happen that our continent is now ruled by ignorant cretins? Who in hell voted for that?
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A protester prepares to hit riot police with a stick during clashes at Syntagma square, central Athens, Wednesday, June 29, 2011. Greece approved more austerity measures needed to avert default next month, in a vote Wednesday that calmed markets but triggered a second day of riots that left dozens injured and the capital blanketed with tear gas. (AP Photo/Petros Giannakouris)
Posted: 6th, July 2011 | In: Money Comment | TrackBack | Permalink
