Jim Sinclair’s Commentary
When you turn your client into a counter party that client enters the cross hairs of the OTC derivative manufacturer.
In all probability, $3.4 billion is the price of tearing up the pieces of paper.
Italy Said to Pay Morgan Stanley $3.4 Billion
By Nicholas Dunbar and Elisa Martinuzzi – Mar 16, 2012 8:10 AM MT
When Morgan Stanley (MS) said in January it had cut its “net exposure” to Italy by $3.4 billion, it didn’t tell investors that the nation paid that entire amount to the bank to exit a bet on interest rates.
Italy, the second-most indebted nation in the European Union, paid the money to unwind derivative contracts from the 1990s that had backfired, said a person with direct knowledge of the Treasury’s payment. It was cheaper for Italy to cancel the transactions rather than to renew, said the person, who declined to be identified because the terms were private.
The cost, equal to half the amount to be raised by Italy’s sales tax increase this year, underscores the risk of derivatives countries use to reduce borrowing costs and guard against swings in interest rates and currencies can sour and generate losses for taxpayers. Italy, with record debt of $2.5 trillion, has lost more than $31 billion on its derivatives at current market values, according to data compiled by the Bloomberg Brief Risk newsletter from regulatory filings.
“These losses demonstrate the speculative nature of these deals and the supremacy of finance over government,” said Italian senator Elio Lannutti, chairman of the consumer group Adusbef.
The transaction may prompt regulators to push for greater transparency and regulation of how governments use derivatives, said the head of the European Parliament panel that deals with market rules.
More…
prompt regulators to push for greater transparency and regulation ...How many times have I heard that
IMO exactly the opposite is done
So get ready for another 10,000 page "bill" which will contain a lil "pork" impeding business and doing fall about transparency |
