The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.NEW YORK ( Bullion Bulls Canada) --One of the most poorly kept secrets in Wall Street's empire of fraud was that credit default swaps were never anything but pretend-insurance. The credit default swap market is a $60 trillion-plus paper Ponzi-scheme. The Wall Street syndicate claiming to "back" this insurance have nothing more than a few billions of dollars of liquidity apiece. Given the magnitude of this fraud and the audacity of the perpetrators, this alone is reason enough to
Now we have what should be the final nail in the coffin of what has been the largest single scam in the history of humanity: proof that this entire market is nothing but a gigantic fraud. Last week, the International Swaps and Derivatives Association
issued a ruling that the more than 70% write-downs on Greece's entire national debt did not constitute a "default event." As a result, the fraud-factories that wrote up the insurance on that debt don't have to honour their contracts. Understand that it has been universally acknowledged by everyone (the Greek government, Greece's creditors, the European Central Bank, and other European nations) that without some "deal" that Greece would have engaged in an involuntary, 100% default within days. In an attempt to mitigate that cataclysmic event, Greece's creditors engaged in a negotiated, voluntary default with Greece's government, in which creditors accepted an immediate 53% reduction on the principal owing to them. Including the interest accrued, these write-downs amounted to as much as 75% for some creditors, and an average write-down of approximately 70%. Nowhere is the law. If there had been an involuntary 100% default on Greece's debt, even the unscrupulous ISDA could not avoid paying out on this supposed "insurance," at which point the entire $60 trillion-plus Ponzi-scheme would come crashing down, and along with it all of the Wall Street banks, and along with it the entire derivatives market. However, in the Western legal system, when losses occur in some financial transactions and one or more parties seek to rely upon the terms of the contract for some form of indemnification there exists a duty to mitigate. What this means is in this case is that if one or more of Greece's creditors wants to collect on the "insurance" they (thought they had) purchased on their Greek debt, they had a legal duty to attempt to minimize the magnitude of Greece's default. This is exactly what these creditors did, and once they had done so they were entitled to rely upon the insurance they had purchased. For the ISDA to issue an entirely perverse ruling that no "default" had occurred could only be based upon one of two conclusions on their part: (a) that no default event had occurred because the "haircut" was less than 100% or (b) that no default event had occurred because the default was voluntary.
With respect to (a), as I have just finished explaining above, insured parties have a duty to mitigate and because of this, 100% losses of this nature are rarely if ever seen. Even apart from mitigating damages, intelligent parties will always seek to negotiate some compromise rather than allow a market to experience a messy collapse which benefits no one. For the ISDA to adopt this interpretation essentially means there could never be any payouts on this insurance, ever. With respect to (b), for precisely the same reasons, all "default events" will ultimately end up as voluntary, negotiated arrangements. So (again, as above) if the ISDA were to adopt this interpretation, it would essentially mean that there could never be any payouts on this insurance. A proverbial "heads-I-win, tails-you-lose" form of insurance. And totally fraudulent. Understand that such a perverse interpretation of standard business practices could only be legally valid if it were explicitly codified in these contracts. We can assume that none of this has been explicitly detailed in these contracts, or there would have been no need for the ISDA to issue a "ruling" over an entirely straightforward, negotiated debt-default. One can only gaze in wonder at the colossal stupidity of the parties purchasing this "insurance." It ranks as one level of folly to enter Wall Street's private, crooked casino (i.e. the derivatives market) to place a bet. However, it ranks many levels higher on this scale of idiocy to place a bet in this crooked casino, when the banksters running the casino simply tell you that they "will explain to you later if and when you win the bet." Allowing bets to be placed (more than $60 trillion in total), and then allowing the banksters taking the bets to define when they lose, after all the bets have been placed, is not even a subtle scam. It is a clumsy fraud perpetrated by a group of oligarchs who yet again have demonstrated their complete contempt for an apparently antiquated doctrine known as the Rule of Law. This brings us to the best part: the ISDA is run by the very same Wall Street fraud-factories holding the vast majority of these bets. The losers (i.e. the insurors of this debt) are claiming the exclusive right to define when they have lost the bet -- irrespective of how perverse their "definitions" appear.
Understand how absurd this fraud has become. If Greece's creditors had simply allowed Greece's government to go under, triggering a 100% default -- and payment on all of the fraudulent CDS contracts -- this same ISDA would be claiming that they weren't required to pay out on their insurance because of the refusal of the creditors to mitigate their losses. Heads I win. Tails you lose. None of the fraud-factories ever pays out on this make-believe insurance. Sadly however, the economic terrorism which Wall Street has been
perpetrating against Europe for over two years lives on, as does this entirely fraudulent market. With this massive fraud now open and totally exposed, we can add yet another group of "accomplices" in allegiance with the Wall Street banksters: the traitorous governments of our Western nations which are blatantly turning their backs while these banksters rape-and-pillage the economies of Europe. Western governments can no longer pretend to represent enlightened, progressive "democracies." The descent into Fascism in the West is nearly complete. Our governments are now nothing more than a network of crime syndicates, working wholly and exclusively against the best interests of their own people, and on behalf of a totally unprincipled cabal of oligarchs.