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How Greece Could Take Down Wall Street
By: EconMatters   Wednesday, February 22, 2012 10:46 AM
 The brokerage used a large number of complex and controversial repurchase agreements, or "repos," for funding and for leveraging profit.  Among its losing bets was something described as a wrong-way $6.3 billion trade the brokerage made on its own behalf on bonds of some of Europe's most indebted nations.

Avizius writes:
[A]n agreement was reached in Europe that investors would have to take a write-down of 50% on Greek Bond debt. Now MF Global was leveraged anywhere from 40 to 1, to 80 to 1 depending on whose figures you believe. Let's assume that MF Global was leveraged 40 to 1, this means that they could not even absorb a small 3% loss, so when the "haircut" of 50% was agreed to, MF Global was finished. It tried to stem its losses by criminally dipping into segregated client accounts, and we all know how that ended with clients losing their money. . . .  
However, MF Global thought that they had risk-free speculation because they had bought these CDS from these big banks to protect themselves in case their bets on European Debt went bad. MF Global should have been protected by its CDS, but since the ISDA would not declare the Greek "credit event" to be a default, MF Global could not cover its losses, causing its collapse.
The house won because it was able to define what " winning" was.  But what happens when Greece or another country simply walks away and refuses to pay?  That is hardly a "haircut."  It is a decapitation.  The asset is in rigor mortis.  By no dictionary definition could it not qualify as a "default."

That sort of definitive Greek default is thought by some analysts to be quite likely, and to be coming soon.  Dr. Irwin Stelzer, a senior fellow and director of Hudson Institute's economic policy studies group, was quoted in Saturday's Yorkshire Post (UK) as saying:
It's only a matter of time before they go bankrupt. They are bankrupt now, it's only a question of how you recognise it and what you call it.
Certainly they will default . . . maybe as early as March.

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