It wasn’t the best of times, it quickly became the worst of times. This classic Dickens’ line sets the scene, mutatis mutandis, for a modern tale of two cities that turned to derivatives in time of need. As the old century rolls into the new, political inertia pushes both Athens and Detroit to source more debt and hedge, for better or for worse, with sophisticated derivatives. But when the market turns against them, they find their fate far worse than when they began. Act one of this story opens in Athens in 2001. The Greek government is caught between a rock and a hard place. On the one hand, they have US Dollar and Japanese Yen debt worth around $10 bn euros. On the other hand, Greece has just entered the Eurozone and is required by the Maastricht Treaty to…

Read More...

First, there’s shock. Then, there’s sadness. Once the city with the highest per capita income in the U.S., Detroit’s slow tumble and decay over the past 50 years has left local government owning and managing too much city space and collecting too little in taxes to keep it running, given so many outstanding obligations. Promises to its public sector unions, pensioners, and bondholders could amount to as much as $20 billion, with no realistic ability to meet those claims as currently organized. Thus, a heavy hearted Detroit filed for Chapter 9 bankruptcy on July 18th, the largest municipal filing in U.S. history. You don’t have to live near or work in this city to be affected by Detroit’s finances. Already, other cities intending to issue new general obligation bonds expect their rates to rise. Philadelphia, for example, has suggested Detroit’s…

Read More...

Market Practices for Settling Derivatives in Bankruptcy: Part II November 2009 Second part of a two part series describing the economic settlement of derivative contracts after a bankruptcy event. Download Complete Article

Read More...

Market Practices for Settling Derivatives in Bankruptcy: Part I October 2009 First part of a two part series describing the treatment of derivative contracts during bankruptcy. Download Complete Article

Read More...