More on CDS and the European crisis.

U.S. banks increased sales of insurance against credit losses to holders of Greek, Portuguese, Irish, Spanish and Italian debt in the first half of 2011, boosting the risk of payouts in the event of defaults.

Guarantees provided by U.S. lenders on government, bank and corporate debt in those countries rose by $80.7 billion to $518 billion, according to the Bank for International Settlements. Almost all of those are credit-default swaps, said two people familiar with the numbers, accounting for two-thirds of the total related to the five nations, BIS data show. [Yalman Onaran. Selling More CDS on Europe Debt Raises Risk for U.S. Banks. Bloomberg. November 1 2011]

This should be read in the context of the 50% Greek haircut, although that haircut itself is in question after the Greek government decided to have a referendum on the bailout and its conditions instead of executing it outright. Because of the referendum, CDS holders, especially speculative holders, may yet win their bet.

But even if they win, this might be a repeat of AIG. A Pyrrhic victory, one might say.

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