Credit Default Swaps Are Back in the News

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Credit default swaps are in the news again:

An unidentified market participant has asked a committee of the International Swaps and Derivatives Association to rule on whether the passage of legislation approving collective-action clauses for Greek debt should trigger payouts on credit-default swaps tied to Greek sovereign bonds.

At stake are payouts from sellers of a net $3.2 billion of CDS on Greece currently outstanding, and the stigma associated with lending credence to an instrument policy makers have long reviled.

I hope the ISDA takes the case, and I hope they rule in favor of the CDS holders. I’m not a big fan of CDS, and I suspect the world would be a better place if CDS were banned outright, but for now they’re legitimate contracts bought and sold in a legitimate way. So if Greece has defaulted, the contracts should pay out — and Greece has defaulted. The European claim that the haircut on Greek bonds is “voluntary” is the worst kind of sophistry, and allowing it to stand because of bullying from the EU would be a travesty. The ISDA shouldn’t be a party to this fiction, and shouldn’t encourage other governments to expect a continuing supply of get-out-of-jail-free cards in the future. That’s moral hazard for you.

Default is part of the latest European deal. Part of the price of that deal is the cost of CDS payouts. Everybody should stop pretending otherwise.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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