CDS protection and sovereign debt default.

This story says that Greek debt restructuring may not trigger debt default provisions in a CDS and therefore Greek bondholders owning them may not get a payout.  Credit default swaps pay when the ISDA determines that a  “credit event”  has occurred.  A credit event that is binding on all bondholders would trigger this insurance payout.  The 50% haircut for Greek bondholders which was part of the bailout proposal for Greece  is voluntary and therefore may not trigger a payout– so says the ISDA. What kind of insurance is this?

Many US banks, GS and MS in particular, have said that they are hedged against sovereign debt.  Obviously markets are asking what that hedge is worth especially if no payout is coming.  You have to wonder if those who opt out of the  haircut can keep carrying these assets on the books at mark-to-myth valuations?  You would think that regulators should be able to look at the security holdings of the banks and their associated hedges and determine what the exposure is. This is what the stress tests that keep happening are supposed to do.  Like in some business schools no one gets a failing grade.

And St. Lous Fed President Bullard was just on CNBC saying that US banks do not have much exposure to European debt.  Who can you believe?

That same CNBC has now begun to flash Spanish and French bond yields on the screen as the Euroland auction I referred to in the earlier morning post presumably terminates. Talk about real-time alerts. And, responding to every tick, equity futures are now turning positive. Come and play suckers.