Speculators Playing With Debt

How speculators make their profits and accumulate fortunes on the backs of the Greek people.

An invention of the financial witch-doctors, the CDS, or ?”credit default swap” finds its origin in insurance policies on loans, guaranteeing them against default of reimbursement by a state or an enterprise. They have now become the fatted calves for Anglo-American speculative hedge funds.

This type of fraud has a double trigger. Speculators first bet on the fall of prices of obligations issued by the Greek Treasury. They engage themselves to sell, on 23 February, a certain number of Greek obligations at their value on 11 February. That is, they sell, at term, some bonds they do not yet actually possess (this is called selling short), but they will actually buy them at their value on 22 February. If, in effect, the value of those bonds has gone down, they realize a hefty profit.

In parallel, they buy on 11 February a CDS, credit default swap, on Greek debt, hoping in this way that suspicion with respect to Greek debt will increase, and that this, in turn, will increase the value of the CDS, which they can then sell to the purchaser of their Greek bonds.

Already at the source of the crisis of sub-prime mortgages, the market in credit default swaps was one of the favored vehicles for speculation. Greece has been obligated to borrow money at increased rates of interest. This in turn increases their debt, as well as the risk of default on reimbursement.

Translated by Henry Crapo for L’Humanité in English.

L’Humanité (“Humanity”) was founded in 1904 by Jean Jaurès, a leader of the French Section of the Workers’ International (SFIO). Truthout translations are published with permission and in cooperation with the independent paper, which has an English language site http://www.humaniteinenglish.com/ where Truthout and other translations are posted.