In what might be one of the most important credit events about to occur in the history of the financial world, the International Swaps and Derivative Association (ISDA) is expected to make a decision as early as today on whether five major US banks will go insolvent according to Jim Sinclair in an interview on January 30th.
The ISDA is one of the most powerful monetary entities in the world, and in many cases according to Mr. Sinclair, has more power than governments. It's dominion spreads throughout the entire banking system, determining whether one or more of the nearly $1 quadrillion in derivatives and credit default swaps are paid out to holders in the event of a bank, sovereign nation, or securities default.
In his interview with Ellis Martin, Mr. Sinclair lays out that the decision by the ISDA could take place as early as today, and no later than this week, and it involves five major US banks, the nation of Greece, the Euro, and the chances of a massive QE bailout in the Western economic system.
Jim Sinclair: With that being said, I think I’ve got a great interview for you… an important interview for you.
Ellis Martin: Great, what do you want to talk about?
JS: I want to talk about the ISDA. The International Swaps and Derivatives Association. Or the people who determine whether a credit event is a default or not. Who they are, and what it means.
EM: Ok, let’s do it then.
JS: Well, nobody’s talking about it. It is the singular, most important organization, with more power than governments. It will determine whether five US banks go insolvent. Tomorrow.
EM: We’re talking tomorrow… as in Tuesday or Wednesday?
JS: I’m talking this week, as in what the final arrangement will be governing the amount of payoff on Greek debt.
EM: Are these big American banks you’re talking about?
JS: Five of the largest US banks control 97% of all the credit default swaps.
EM: Why isn’t this is the so-called main stream media right now?
JS: Media Blackout. The Market is oblivious of it, even though the decision they make will certainly be in their favor, the question is how will you do it with a straight face? - Interview between Ellis Martin and Jim Sinclair
(You can hear the entire interview by going to the video to the left of this article)
According to Jim Sinclair, the catalyst for this credit event will be the default of Greece, and the chain reaction that will take place regarding the derivatives and insurance demanded by the bondholders of Greek debt. Since the five largest US banks control 97% of all credit default swaps, a demand of payment on those derivatives would instantly wipe out these financial institutions, and this is the reason that the ISDA is working behind the scenes to not only implement a contingency policy, but in the end, deny outright the bondholders the right to claim their insurance on defaulting bonds.
Recently, this very same denial of insurance claims took place when MF Global declared bankruptcy, and the ISDA declared it was not a credit event, even though the company had defaulted on more than 50% of their debts.
Commentary on the interview was also done by Turd Ferguson at the TF Metals Report. In his blog, he broke down Jim Sinclair's news into 10 important event scenarios, and the potential actions by the ISDA, and against the debt holders.
If I understand this right, here is what Sinclair is saying:
In 2008, AIG had sold CDS on CDOs. CDOs defaulted and AIG had to pay. AIG went broke. The counterparties to the CDS were GS, JPM et al and had to be made whole on their losses that they thought were insured by AIG.
US Govt funnels TARP cash thru AIG to GS, JPM et al to cover losses
IN 2012, Greece is about to default, just like the CDOs of 2008.
ISDA (run by Big 5 banks) declares that 70% haircut on Greek bonds is not a default.
Therefore, Big 5 do not have to pay off on CDOs bought by Greek bondholders. Big 5 off the hook.
Greek bondholders who thought they had principal insurance are now screwed and left holding the bag.
Greek bondholders (big Euro banks, big Euro govts, big hedge funds) will now be insolvent.
Greek bondholders will need massive capital injection.
Short term euro negative/dollar positive.
Regardless, lots and lots of money printing to save Greek bondholders. – Turd Ferguson, TF Metals Report
Jim Sinclair has been a precious metals and commodities trader since 1977, and has worked as am Executive member in two major Wall Street firms on the New York Stock Exchange (NYSE). He also runs the JSMineset.com website which provides financial and economic news as an inside sources in the financial world.
As in 2008 with Bear Stearns, Lehman Brothers, and AIG, the public never knew that these institutions were on the edge of default until the Treasury Department formulated their selloffs and bailouts in a single weekend. This appears to now be the case with Greece and its imminent default, as the ECB and European financial bodies have hedged news on how dire the situation truely is. But more importantly, the fate of the entire Western banking system rests in the hands of the ISDA, and according to Jim Sinclair, the decision on their solvency could be made as early as today, or as late as the end of the week.
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