There is almost no margin for error when dealing in Bonds. I suspect whomever buys this out of BK will then sue everyone they can - especially the people who sold them CDS.
Also this is really quite bad for Europe. By forcing people to take a 50% haircut on Greek debt, who will invest in any European bond in the future? Won’t people now scramble to unwind Italian, Spanish, Portuguese, Irish debt? For Europe to merely dictate that the holders of Greek debt must “voluntarily” take a 50% haircut is sinister. They wiped out Corzine’s company among others to protect in part their own institutions that sold CDS. It’s really sick, actually, and the long term impact could be disastrous for Europe and the Euro.
-——the long term impact could be disastrous——
Actually the short term is a disaster for the MF’s at Global.
However your post raises the question....... what else could they do? They screwed around for a long time developing the solution that now appears to be a problem.
To me is falls under the heading “do something, even if it’s wrong”
True, but it won't work, because those institutions will be done in as collateral damage anyway. If CDS doesn't pay, then no one will buy CDS. And it makes matters worse that MF Global went bankrupt, as they were one of the "insurance companies" selling CDS. The CDS is only as good as the party on the other end of the deal, and one of them now failed. The others don't look significantly better for the long haul.
The first time I heard of MF Global was back in 2008-09, when a "rogue trader" made a "data input error" and traded far beyond what he should have been allowed to on trades, and cost the company billions when they went bad on them. This always sounded highly suspicious, as well run companies don't have systems where people can allocate billions without traceability, range checks, validation, manager approvals, etc. I suspect that this organization has some criminal activity to hide, and hopefully it will now come out, and people will go to jail.
And hats off to the Tea Party, and even some credit to Occupy Wall Street. In 2008 this company would have been bailed out, but the political climate has changed so much it was never a serious consideration this time.