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ORIGINAL FRENCH ARTICLE: Les spéculateurs jouent sur la dette

by Clotilde Mathieu

Speculators Playing with Debt

Translated Tuesday 16 February 2010, by Henry Crapo and reviewed by Henry Crapo

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 swaps ,
find their origin in insurance policies on loans, guaranteeing them against default on 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 of the fall of prices of obligations issues 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.

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