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Who is swimming naked in Europe


ubuy2wron
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Warren has been a source of wonderfull quotes one of my favorites is in market down turns  "when the tide goes out" one discovers who has been swimming naked. The ECB has the largest position in Greek debt but there is a lot unaccounted for and a lot of CDS has been written on various European financial instruments. Within 30 days we will discover if the can gets kicked down the road re Greece or if default is in the cards. One of the consequences of the Lehman Bros failure was the collapse of AIG, a breakdown of the Euro is pretty darn difficult to hedge so where is the risk concentrated. Discuss in 20 pages or less and hand in your papers by next week. LOL Sometimes in the money mgmt game its better to know where not to be than to try to figure out where you should have your dough invested.

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I have no direct exposure to Europe. Its in the too hard pile and it appears they dont have the will to finally solve the problem. No economy or people will suffer through 25 years of austerity so lenders can avoid having egg on their face. With that said extend and pretend is working very well here in commercial re.

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  • 1 month later...

The ECB has the largest position in Greek debt but there is a lot unaccounted for and a lot of CDS has been written on various European financial instruments.

 

Regarding the CDS, I presume a lot of it was underwritten before 2009, even 2008.  Should they kick the can down the road another 3 years, a lot of those contracts will be expired, therefore reducing a good deal of risk to systemically important institutions (underwriters of the CDS).  I can't see why facing the "inevitable" default today is more desirable than waiting a few years; with all the unknowns from the CDS why take the hit today, when in a couple more years of CDS runoff the risk should be reduced?

 

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