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Fannie and Freddie: Bailout, CDS
the CDS should trigger because there is a "credit event", in this case "bankruptcy which has a broad definition, roughly bankruptcy means (for a CDS contract) “…the appointment of a conservator, receiver, trustee…. etc…..as well as any public or private action which results in an issuer relinquishing control of its assets, operations or management.”
clearly the case here, but i am not a lawyer…
the losers will be the protection buyers since the debt is actually becoming more explicitly guaranteed by the government than ever before and yields should move towards treasuries, but the fact that debt holders will be made whole is irrelevant to effect the trigger, only the “credit event” matters.
Sep 7 05:53 PM
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