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Economy
In reply to the discussion: Weekend Economists Ask: "What Were They Thinking?" March 16-18, 2012 [View all]Demeter
(85,373 posts)21. Italy Said to Pay Morgan Stanley $3.4 Billion
http://www.bloomberg.com/news/2012-03-16/italy-said-to-pay-morgan-stanley-3-4-billion-to-exit-derivative.html
When Morgan Stanley (MS) said in January it had cut its net exposure to Italy by $3.4 billion, it didnt tell investors that the nation paid that entire amount to the bank to exit a bet on interest rates.
Italy, the second-most indebted nation in the European Union, paid the money to unwind derivative contracts from the 1990s that had backfired, said a person with direct knowledge of the Treasurys payment. It was cheaper for Italy to cancel the transactions rather than to renew, said the person, who declined to be identified because the terms were private.
The cost, equal to half the amount to be raised by Italys sales tax increase this year, underscores the risk of derivatives countries use to reduce borrowing costs and guard against swings in interest rates and currencies can sour and generate losses for taxpayers. Italy, with record debt of $2.5 trillion, has lost more than $31 billion on its derivatives at current market values, according to data compiled by the Bloomberg Brief Risk newsletter from regulatory filings.
These losses demonstrate the speculative nature of these deals and the supremacy of finance over government, said Italian senator Elio Lannutti, chairman of the consumer group Adusbef.
The transaction may prompt regulators to push for greater transparency and regulation of how governments use derivatives, said the head of the European Parliament panel that deals with market rules.
OR MAYBE NOT
THERE'S MORE AT LINK
When Morgan Stanley (MS) said in January it had cut its net exposure to Italy by $3.4 billion, it didnt tell investors that the nation paid that entire amount to the bank to exit a bet on interest rates.
Italy, the second-most indebted nation in the European Union, paid the money to unwind derivative contracts from the 1990s that had backfired, said a person with direct knowledge of the Treasurys payment. It was cheaper for Italy to cancel the transactions rather than to renew, said the person, who declined to be identified because the terms were private.
The cost, equal to half the amount to be raised by Italys sales tax increase this year, underscores the risk of derivatives countries use to reduce borrowing costs and guard against swings in interest rates and currencies can sour and generate losses for taxpayers. Italy, with record debt of $2.5 trillion, has lost more than $31 billion on its derivatives at current market values, according to data compiled by the Bloomberg Brief Risk newsletter from regulatory filings.
These losses demonstrate the speculative nature of these deals and the supremacy of finance over government, said Italian senator Elio Lannutti, chairman of the consumer group Adusbef.
The transaction may prompt regulators to push for greater transparency and regulation of how governments use derivatives, said the head of the European Parliament panel that deals with market rules.
OR MAYBE NOT
THERE'S MORE AT LINK
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LEAP/E2020: The five devastating storms in summer 2012 at the heart of the world geopolitical swing
Ghost Dog
Mar 2012
#2
THE US IS STILL OPERATING UNDER THE DELUSION THAT IT CAN CREATE ITS OWN REALITY
Demeter
Mar 2012
#58
White House Pours One Out for All the Dead Journos, Waterboards the Living
girl gone mad
Mar 2012
#14
One Half of Italy's New Sales Tax Receipts Go Directly to Morgan Stanley in New York
girl gone mad
Mar 2012
#27
You're busted, Demeter. So busy posting, you take too little time to read the SMW, even.
Ghost Dog
Mar 2012
#32