Here's a neat little piece of half-hearted scaremongering by Jim Sinclair
He's says that ISDA's impedning decision (on declaring a default or not by ISDA) threatens to bankrupt 5 big banks, who he says "hold 97% of the liabilities" behind the outstanding CDS's backing Greek debt.
Here are the stakes, which he never explains clearly:
Some portion (?) of the Greek debt of EUR xx Billion is backed by Credit Default Swaps (CDS) issued by big Global banks. ISDA was to make a decision about whether or not the proposed 70% haircut being forced on the private creditors was an event-of-default-which-triggers-payment on the outstanding CDS obligations relating to Greek debt.
Since ISDA* makes the decision, they are likely to make one that least harms its members (the big banks).
What will their decision be?
ISDA has already said that a voluntary reorg is not an event of default.
The upshot would be banks and hedge funds holding CDS on Greek debt, would get no payout on those CDS, because default has not been declared.
But that may not be the end of it. I expect that some hedge funds holding CDS insurance will take this potentially biased decision to court eventually.
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*Why might I understand this better than JS:
First of all, as often happens: he is tongue-tied (intentionally or unintentionallly) in discussing some complex financial structures.
Secondly, Years ago when I worked at Chase, my boss was R-- S--, and his non Chase job was Chairman of ISDA, so I have some insight into how ISDA operates, from having seen his decision-making up close. (There's a book out there someplace about derivatives, for which he was Editor, and I contributed a chapter.)