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Credit default swap (CDS) – All about swap contract and agreement

A credit default swap (CDS) can almost be thought of as a form of insurance. If a borrower of money does not repay her loan, she "defaults." If a lender has purchased a CDS on that loan from an insurance company, the lender can then use the default as a credit to swap it in exchange for a repayment from an insurance company. However, one does not need to be the lender to profit from this situation. Anyone (usually called a speculator) can purchase a CDS. If a borrower does not repay his loan on time and defaults not only does the lender get paid by the insurance company, but the speculator gets paid as well. It is in the lender's best interest that he gets his money back, either from the borrower, or from the insurance company if the borrower is unable to pay back his loan. However, it is in the speculator's best interest that the borrower never repay his loan and default because that is the only way that the speculator can then take that default, turn it into a credit, and swap it for a cash payment from an insurance company.

A more technical way of looking at it is that a credit default swap (CDS) is a swap contract and agreement in which the protection buyer of the CDS makes a series of payments (often referred to as the CDS "fee" or "spread") to the protection seller and, in exchange, receives a payoff if a credit instrument (typically a bond or loan) experiences a credit event. It is a form ofreverse trading.

A credit default swap is a bilateral contract between the buyer and seller of protection. The CDS will refer to a "reference entity" or "reference obligor", usually a corporation or government. The reference entity is not a party to the contract. The protection buyer makes quarterly premium payments—the "spread"—to the protection seller. If the reference entity defaults, the protection seller pays the buyer the par value of the bond in exchange for physical delivery of the bond, although settlement may also be by cash or auction. A default is referred to as a "credit event" and includes such events as failure to pay, restructuring and bankruptcy. Most CDSs are in the $10–$20 million range with maturities between one and 10 years.

A holder of a bond may “buy protection” to hedge its risk of default. In this way, a CDS is similar to credit insurance, although CDS are not similar to or subject to regulations governing casualty or life insurance. Also, investors can buy and sell protection without owning any debt of the reference entity. These “naked credit default swaps” allow traders to speculate on debt issues and the creditworthiness of reference entities. Credit default swaps can be used to create synthetic long and short positions in the reference entity.Naked CDS constitute most of the market in CDS. In addition, credit default swaps can also be used in capital structure arbitrage.

Credit default swaps have existed since the early 1990s, but the market increased tremendously starting in 2003. By the end of 2007, the outstanding amount was $62.2 trillion, falling to $38.6 trillion by the end of 2008.

Most CDSs are documented using standard forms promulgated by the International Swaps and Derivatives Association (ISDA), although some are tailored to meet specific needs. Credit default swaps have many variations. In addition to the basic, single-name swaps, there are basket default swaps (BDS), index CDS, funded CDS (also called a credit linked notes), as well as loan only credit default swaps (LCDS). In addition to corporations or governments, the reference entity can include a special purpose vehicle issuing asset backed securities.

Credit default swaps are not traded on an exchange and there is no required reporting of transactions to a government agency. During the 2007-2010 financial crisis the lack of transparency became a concern to regulators, as was the trillion dollar size of the market, which could pose a systemic risk to the economy.^[2][4][10] In March 2010, the DTCC Trade Information Warehouse (see Sources of Market Data) announced it would voluntarily give regulators greater access to its credit default swaps database.

From Wikipedia, the free encyclopedia

Republic of Angola - The profile country in a chronology of key events

A chronology of key events:

1300s - Kongo kingdom consolidates in the north.

1483 - Portuguese arrive.

1575 - Portuguese found Luanda.

17th and 18th centuries - Angola becomes a major Portuguese trading arena for slaves. Between 1580 and 1680 a million plus are shipped to Brazil.

1836 - Slave trade officially abolished by the Portuguese government.

1885-1930 - Portugal consolidates colonial control over Angola, local resistance persists.

1951 - Angola's status changes from colony to overseas province.

1956 - The early beginnings of the socialist guerrilla independence movement, the People's Movement for the Liberation of Angola (MPLA), based in northern Congo.

1950s-1961 - Nationalist movement develops, guerrilla war begins.

1961 - Forced labour abolished after revolts on coffee plantations leave 50,000 dead. The fight for independence is bolstered.

1974 - Revolution in Portugal, colonial empire collapses.

Independence

1976 - MPLA gains upper hand.

1979 - MPLA leader Agostinho Neto dies. Jose Eduardo dos Santos takes over as president.

1987 - South African forces enter Angola to support Unita.

1988 - South Africa agrees to Namibian independence in exchange for removal of Cuban troops from Angola.

1989 - Dos Santos, Unita leader Jonas Savimbi agree cease-fire, which collapses soon afterwards and guerrilla activity resumes.

Towards peace

1991 April - MPLA drops Marxism-Leninism in favour of social democracy.

1991 May - Dos Santos, Savimbi sign peace deal in Lisbon which results in a new multiparty constitution.

1992 September - Presidential and parliamentary polls certified by UN monitors as generally free and fair. Dos Santo gains more votes than Savimbi, who rejects results and resumes guerrilla war.

1993 - UN imposes sanctions against Unita. The US acknowledges the MPLA.

1994 - Government, Unita sign Lusaka Protocol peace accord.

1995 - Dos Santos, Savimbi meet, confirm commitment to peace. First of 7,000 UN peacekeepers arrive.

1996 - Dos Santos, Savimbi agree to form unity government join forces into national army.

1997 April - Unified government inaugurated, with Savimbi declining post in unity government and failing to attend inauguration ceremony.

1997 May - Tension mounts, with few Unita troops having integrated into army.

1998 - Full-scale fighting resumes. Thousands killed in next four years of fighting.

Angola intervenes in civil war in Democratic Republic of Congo on the side of President Laurent-Desire Kabila.

1999 - UN ends its peacekeeping mission.

2002 February - Savimbi killed by government troops. Government, Unita sign ceasefire shortly afterwards.

Demobilisation

2002 May - Unita's military commander says 85% of his troops have gathered at demobilisation camps. There are concerns that food shortages in the camps could threaten the peace process.

2002 June - UN appeals for aid for thousands of refugees heading home after the ceasefire.

Medical charity Medecins sans Frontieres says half a million Angolans are facing starvation, a legacy of civil war.

2002 August - Unita scraps its armed wing. "The war has ended," proclaims Angola's defence minister.

2003 February - UN mission overseeing the peace process winds up.

2003 June - Unita - now a political party - elects Isaias Samakuva as its new leader.

2004 April onwards - Tens of thousands of illegal foreign diamond miners are expelled in a crackdown on illegal mining and trafficking. In December the government says 300,000 foreign diamond dealers have been expelled.

2004 September - Oil production reaches one million barrels per day.

2005 March-May - Marburg virus, which is deadlier than Ebola, kills more than 300 people, most of them in the north.

2005 June - Chinese Premier Wen Jiabao visits, promises to extend more than $2 billion in new credit, in addition to a $3 billion credit line Beijing has already given Luanda.

2006 August - The government signs a peace deal with a separatist group in the northern enclave of Cabinda.

2006 October - The UN refugee agency begins "final repatriation" of Angolans who fled the civil war to the neighbouring DR Congo.

2007 February - President dos Santos says parliamentary elections will be held in 2008 and presidential polls in 2009.

2008 September - First parliamentary elections for 16 years.

2009 March - Pope Benedict celebrates mass in front of more than a million people in Luanda.

2009 October - Angola expels illegal Congolese diamond miners. Democratic Republic of Congo responds by expelling some 20,000 Angolans.

2009 December - President dos Santos suggests presidential elections will have to wait another three years.

State oil firm Sonangol signs a deal to produce oil in Iraq.

Constitutional change

2010 January - Angola hosts African Nations Cup, continent's most popular sporting event. Bus carrying Togo football team is attacked by Cabinda separatists.

Parliament approves new constitution strengthening the presidency and abolishing direct elections for the post.

2010 September - President of DR Congo, Joseph Kabila, visits Angola. Ties between the two neighbours deteriorated in 2009 when Angola began expelling illegal Congolese immigrants and Congo retaliated.

2010 October - UN report into killing of Hutus in DR Congo between 1993 and 2003 says they may constitute "crimes of genocide". It implicates Angola, Rwanda, Uganda, Burundi and Zimbabwe.

2010 November - Convoy carrying Chinese mine workers attacked in the region of Cabinda. A faction of the Cabinda separatist movement Flec claims responsibility.

US urges Angola to investigate alleged rape of women recently deported to DR Congo.

2011 March - More than 20,000 people rally in support for President Dos Santos in response to a reported social media campaign calling on people to demonstrate against the government. Human Rights Watch accuses the government of a "campaign of intimidation" to suppress anti-government protests.

From BBC/Wikipedia and Others

Republic of Angola: Ambrósio de Lemos, police Chief Concerned About Illegal Immigration

Cabinda/Angop — The general commissioner of the Angolan National Police (PNA), Ambrósio de Lemos has expressed concern about the illegal immigration, calling for redoubling of mechanism to combat the phenomenon.

The Police general commander expressed this worry Thursday in northern Cabinda province at the opening of meeting that gathered members of Consultative Council of Provincial Command and local Branch Office of Interior Ministry (MINT).

He underlined that the visit to the northern region has to do with the government concern, both central and local, on the illegal immigration recorded in Cabinda.

Ambrósio de Lemos warned that the situation is worrying despite the response by police forces.

He said that the phenomenon brings harmful effects to the country's economic, social and cultural sectors.

The general commander associated the criminality with the illegal immigration.

During his stay in Cabinda province, Ambrósio de Lemos will be informed about the daily operative and public security situation, as well as the organisational and operational state of the local police command.

On Friday, the general commander will visit the border checkpoint of Ema, the station of the border police in Ntó locality and the land aimed at building social houses and police command of Cacongo district.

The delegation of the general commander is comprised by the commissioner in chief Alberto Jorge Antunes "Jojo", commander of the border police, national directors of finance, human resources, logistics and transports, as well as the advisor of the northern police region and other staff.

Can Japan Afford Recovery? Yes. Japan Does Not Need Tax Hikes or Charity

The press is filled with speculation about the impact of Japan's earthquake and its nuclear disaster on government finances. Prime Minister Naoto Kan said that his government is exploring sources of funding, and two-thirds of surveyed citizens are willing to accept higher taxes to pay for relief. Corporate tax cuts might be rescinded, and Japan has always favored consumption tax surcharges to reduce budget deficits. Recovery spending might add $250 to $300 billion to the government's likely budget of $1 trillion. (See here) As everyone knows, Japan's government debt is already 200% of GDP, and with the extra spending as well as loss of tax revenue due to the economic slowdown that is likely to befall the economy (at least temporarily), the budget shortfall will get bigger.

In a touching display of charity, the global community has responded by promising to provide funds for relief. Everyone's favorite auto-tune singer, Britney Spears, is donating some VIP tickets to her concert; My Chemical Romance is donating a song; Adam Ant is headlining a relief show; and sports stars around the world are leading efforts to raise funds. Now, I do not want to be a killjoy, but even after two decades of economic depression, the “secret savings” of Japanese wives still average over $37,000 per household. (See here) Folks, this is not Haiti or the New Orleans that was abandoned by President Bush. This is one of the richest societies that has ever graced planet earth. What the Japanese do not need is money from abroad. They do need expertise and supplies. I was horrified to find that some of my friends in California were downing iodine pills. OMG—send THOSE to Japan, not greenbacks, songs, or concert tickets.

I do not intend to minimize Japan's real problems, after suffering from a triple whammy of Biblical proportions: earthquake, tsunami, and nuclear meltdown. It will take a very long time to recover.

But, it would only add insult to injury to raise taxes now. It would make economic recovery much harder to attain and sustain. As a sovereign nation with its own sovereign currency, Japan can “afford” recovery—government can afford to buy anything for sale in yen that might help in the relief efforts. Japan has unemployed labor and other idle resources—both for sale in yen. To be sure, the massive destruction will create bottlenecks—it will take time to reopen some factories, to get workers back into a stable home environment so that they can work, and to mobilize productive capacity. Japan will need to increase imports of some strategic materials and supplies. But it has all the yen it needs to undertake the massive recovery effort. As in all sovereign nations, the Japanese government spends by keystrokes and so long as it can find electrons, it can credit balance sheets. And if it needs to buy some stuff in dollars, it's got those, too.

If the recovery really gets underway, aggregate demand (to replace housing, autos, factories, and infrastructure lost in the catastrophe) could superheat the economy. Inflation pressures might build. Now, THAT would be the time to raise taxes. Not to “pay for” government spending, but to take some of the fire out of an overheated economy. Better yet, relief and reconstruction will need to be planned. Yes, I know that scares the pants off the neolibs, but neither war nor reconstruction can be left to “market forces”. The aforementioned bottlenecks will generate price pressures—and, worse, price gouging—long before full employment is reached. Coordination together with wage and price controls (or “guidelines”) will let the economy generate sufficient steam to rebuild the nation without excessive inflation.

Unfortunately, Japanese policymakers have shown over the past two decades that they usually lose nerve long before they produce a sustainable recovery. They frequently adopt consumption taxes and/or spending constraints, and rely on monetary policy to overcome fiscal drag. It never does. Japan has been test-running Chairman Bernanke's quantitative easing for 20 years, with exactly the same results that we observe now in the US: nada, zip, niente. Zero interest rates, if anything, depress the economy—especially if you have a whole lot of household saving (and no debt) in the form of government bonds that earn you little income. Sound familiar? If Helicopter Ben has his way, we will see another 17 years of this in the US.

But what about the mountains of Japanese government debt? There is no solvency risk—it is sovereign debt, denominated in yen and serviced by keystrokes. Isn't that inflationary? Need you ask, after 20 years of deflation? Doesn't it cause currency depreciation? If only it would! Burden the grandkids? They are inheriting the treasuries—all they want is for the BOJ to raise interest rates so they can clip some coupons.

Clearly, it is not all hunky dory in Japan. Aside from the current calamity, Japan is aging and losing its workforce. Its firms have been offshoring production for four decades so that even the non-elderly are not working. Jimmy Carter's “national malaise” jumped the American ship and took up home in Japan—with households responding by ramping up savings. If it weren't for American consumers, Japan Inc. would have practically no markets.

But these problems cannot be resolved by efforts to downsize government and its deficit. Indeed, the rational response to both the immediate problems as well as the longer-term trends is more government spending and less taxes.

L. Randall Wray is a Professor of Economics, University of Missouri—Kansas City. A student of Hyman Minsky, his research focuses on monetary and fiscal policy as well as unemployment and job creation. He writes a weekly column for Benzinga every Tuesday. He also blogs at New Economic Perspectives, and is a BrainTruster at New Deal 2.0. He is a senior scholar at the Levy Economics Institute, and has been a visiting professor at the University of Rome (La Sapienza), UNAM (Mexico City), University of Paris (South), and the University of Bologna (Italy).

The ETF market can be confusing and hard to beat, but ETF Professor's trading ideas help you make profit consistently

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L. Randall Wray

Somali Prisoners Complain Against Inhuman Treatment By Angolan Policemen

These youngsters, who are currently detained in Angola, contacted Shabelle radio to expose the tribulations they have encountered since they were jailed by the Angolan police.

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