And the other side of the CDS? The writers of the swap and those that are on the hook for repayment? And the effect that the default would have on the on the public holders of Greek debt?
We saw what happened to the financial system when a lot swaps were invoked in 2008. So, who gets to be AIG, Bear Stearns, and Lehman this time around? And can we deal with another shock to the system 3.5 years away from the last event?
TOC, your comment illustrates perfectly the myopia that I spoke of — yes, for the CDS purchasers, forcing a default is the “best” option for them. But the wider effect would be akin to the company that dumps toxic waste into the closest body of water, without thinking about the fact that the town the company is based in drinks that water; including all of the company employees and their families, from the CEO to the janitor. Every dollar of par recovered by a CDS purchaser has to be covered by the CDS writer. There is still no such thing as a free lunch in economics.
Short term and micro self-interest smart, long term and macro self-interest stupid.