The Impending Undeclared Default Of 5 Major US Banks
January 30, 2012, at 10:05 pm
by Jim Sinclair
Ellis Martin of www.EllisMartinReport.com covers in detail the impending undeclared default of 5 major US banks this week by the International Swaps and Derivatives Association (ISDA). (This is a BIG deal that won’t be reported.)
(My Notes:
MF Global had bought CDS instruments to hedge its bond holdings. The bonds dropped 50% but ISDA said that was not a default, so the CDSs didn’t pay off. MF went bankrupt. The people said, hmmm, okayyyy.
When the Greek debt is marked down 70% or so (very soon), the ISDA will have to say that this is not a default event or the 5 U.S. banks that sold 97% of the CDS instruments insuring against debt default will go insolvent. They heavily influence, as in basically run, ISDA.
This impending non-declared default on Greek bonds will leave the bondholders twisting in the wind, since they, like MF Global, are hedged with CDS instruments. I suppose some will go bankrupt, some will suffer credit downgrades and require bailouts. I suppose, world investors, seeing the ISDA renege will lose faith in CDS as a hedge and sovereign and other bond rates will rise. I suppose the EURO will start to fall.
Sinclair says QE3 will follow, which is dollar negative, but as quietly as possible. ISDA declares a non-default for the 70% write-down and the media will take it in stride, the Fed issues dollar swaps for Europe and funds IMF to cover sovereign debt rollover requirements. Already in Dec. the Fed issued $500 billion in swaps to the ECB for European banks.
QE3 means liquidity through 2012. Liquidity means stocks and precious metals should rise though 2012. the dollar should top below $80-82, and fall.
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