Banks shouldn't be both judge and jury on credit defaults


By the Bloomberg News Editorial Board
Bloomberg News
Wednesday, March 7, 2012

Imagine you bought a house and, to insure it, you had to purchase coverage from the homebuilder.

Then imagine a fire nearly destroyed the house, but your ability to collect the insurance depended on a committee of anonymous homebuilders meeting in secret to vote on whether to write you a check. If denied, the panel wouldn't have to provide an explanation, you wouldn't be allowed to review the minutes of closed-door discussions, and you'd have no right to appeal.

Not a great system. But not dissimilar to the one that governs the world of credit-default swaps, the contracts that insure sovereign- and corporate-debt investors against default. Panels made up of representatives from large banks, hedge funds, investment firms, and other interested parties, formed by the International Swaps and Derivatives Association, decide whether payouts will be made to investors.

... Dispatch continues below ...


Sona Discovers Potential High-Grade Gold Mineralization
at Blackdome in British Columbia -- 13.6g over 1.5 Meters

From a Company Press Release
November 22, 2011

VANCOUVER, British Columbia -- With its latest surface diamond drilling program at its 100-percent-owned, formerly producing Blackdome gold mine in southern British Columbia, Sona Resources Corp. has discovered a potentially high-grade gold-mineralized area, with one hole intersecting 13.6 grams of gold in 1.5 meters of core drilling.

"We intersected a promising new mineralized zone, and we feel optimistic about the assay results," says Sona's president and CEO, John P. Thompson. "We have undertaken an aggressive exploration program that has tested a number of target zones. Our discovery of this new gold-bearing structure is significant, and it represents a positive development for the company."

Sona aims to bring its permitted Blackdome mill back into production over the next year and a half, at a rate of 200 tonnes per day, with feed from the formerly producing Blackdome mine and the nearby Elizabeth gold deposit property. A positive preliminary economic assessment by Micon International Ltd., based on a gold price of $950 per ounce over eight years, has estimated a cash cost of $208 per tonne milled, or $686 per gold ounce recovered.

For the company's complete press release, please visit:

With the Greek crisis, the group has been busy. It already ruled March 1 that Greece's debt restructuring so far wasn't a "credit event," meaning it didn't trigger payments on credit-default swaps. It may have been the correct decision. But no outsiders participated in that meeting. No transcript was made public. And when the determinations committee, as it's called, issued a decision, a terse 300-word explanation was provided. As for CDS buyers, there was no opportunity for an appeal.

Although the names of the firms on this committee are known, including JPMorgan Chase & Co., Goldman Sachs Group Inc., Morgan Stanley, and Pacific Investment Management Co., the individual decision makers are not. What's more, the financial stake that the firms have in Greek debt is not disclosed, although that information is sometimes available in regulatory filings.

True, only a relatively small amount of money -- about $3.2 billion after netting all parties' exposures -- is in play. But there's a larger issue here: the integrity of the ISDA process, of which Greece offers the first of several potential tests. If Ireland, Italy, Portugal, Spain, or any other troubled European Union country sought to restructure its debts like Greece, the heretofore obscure ISDA could become a household name.

The next test could come as early as Thursday evening, when private bondholders must decide whether they are willing to swap existing Greek debt for new bonds, in the process accepting losses on more than half the face value of their current bonds. If the Greek government doesn't get 75 percent acceptance, it will invoke a legal clause to force all private creditors to accept the exchange. If that happens, then ISDA may have no choice but to declare the restructuring coercive, not voluntary, and trigger the CDS payouts.

ISDA defends its procedures, arguing that its panelists must have market expertise. Five of the 15 members on the Greek CDS committee are from the buy side, meaning they represent investors such as mutual funds. A supermajority, 12 of the 15, is required for a credit event decision, meaning that the 10 sell-side panelists -- representing mostly major banks -- can't ram through a decision that benefits only them. Furthermore, ISDA says, a CDS is a binding, legal contract to which all market participants have agreed. Little is left to the imagination: Definitions of credit events and other legal terms are 100 pages long.

The CDS market, thanks to ISDA and pressure from the New York Fed, already operates far more smoothly than it did just a few years ago. Until 2009 the question of whether a credit event had occurred was duked out between each CDS buyer and seller. A major default could have brought financial disaster. Still, the CDS market would benefit further if ISDA deliberations were made public -- minutes could even be released a week or two after the fact, the way the Federal Reserve publishes its monetary policy deliberations.

More to the point, monumental decisions involving billions of dollars ideally should be made by an outside, independent group. ISDA already has such groups in the wings, but it uses them only in case a determinations committee can't get agreement from a supermajority and needs to hand off the matter to a neutral panel.

In any market, secrecy begets fear. The credit markets must be supremely confident that judgments about credit events are made in good faith. And investors must believe they are being dealt with fairly. If they think default insurance no longer protects them, they might simply avoid owning the bonds of Ireland, Italy, Portugal, and Spain, undermining the CDS market and endangering those countries' ability to survive the debt crisis.

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Prophecy Platinum (TSXV: NKL) and Ursa Major Minerals
Sign Combination Agreement

Company Press Release
Friday, March 2, 2012

VANCOUVER, British Columbia, Canada -- Prophecy Platinum Corp. (TSX-V: NKL, OTC-QX: PNIKF, Frankfurt: P94P) and Ursa Major Minerals Inc. have signed a binding letter of agreement for a business combination through a proposed all-share transaction. In doing so Prophecy and Ursa have acted at arm's length and the transaction has been negotiated at arm's length.

Prophecy will issue one common share in exchange for every 25 outstanding common shares of Ursa. Ursa options and warrants will be exchanged for options and warrants of Prophecy on an agreed schedule.

Prophecy's offer represents a value of about $0.15 per each common share of Ursa based on Prophecy's share price of $3.70 as at March 1, representing a premium of 130 percent to Ursa's March 1 closing price of $0.065.

Prophecy is to subscribe for $1 million common shares of Ursa by way of private placement financing at $0.06 per share, subject to regulatory approval. Upon placement completion, John Lee and Greg Hall, current Prophecy directors, will be appointed to Ursa's board.

Prophecy thus will become a mid-tier resource company with a robust and
diversified pipeline of platinum nickel projects, including:

-- The fully permitted open-pit Shakespeare PGM-Ni-Cu mine close to Sudbury, Ontario, infrastructure with near-term production capabilities.

-- The flagship Wellgreen (Yukon) PGM-Ni-Cu project with more than 10 million ounces of Pt-Pd-Au inferred resource. Drilling is under way and a preliminary economic assessment study is pending.

-- Manitoba's Lynn Lake Ni-Cu project with more than 262 million pounds Ni and 138 million pounds Cu measured and indicated.

For the complete announcement, please visit Prophecy Platinum's Internet site here: