Speculative transactions: This is how billions of gambling works

Hamburg - In the Greek debt drama, a strange being plays an important role: the speculator. He stands for the chaos, for the negative fascination of the stranger. He is a phantom, an enemy the public hardly knows. Threatening, but strangely featureless. Archetypically greedy and apparently very, very powerful.

At least that suggests the scenery that surrounds the speculator: you see the crumbling acropolis, the falling euro exchange rate, charts on which interest rate curves for sovereign debt soar; and you read about the speculator, the politicians in front of him, Greece's public debt in the amount or drives the euro into the basement.

In order to master the speculator, the EU has decided on a huge rescue package at the weekend. Together with the IMF, a credit line totaling 750 billion euros will be available for the Member States in the future. Merkel said this package is necessary because there was an attack against the euro.

But who is speculating there? How does he proceed? And are the gamers really that incredibly powerful?

Gigantic speculation market

The term speculator comes from Latin ( speculor : I spy). By popular definition, a speculator is a human who bets on an event in the future. For example, on price changes in the financial markets to profit from it. Anyone who owns shares, anyone who invests in funds does so indirectly - through his bank.

Investors give their money to the financial institution they trust - with instructions to increase it. For example, the financial institution will invest the money in a fund; For example, this fund holds Greek government bonds or credit default swaps on Greek government bonds, known as credit default swaps (CDS).

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The speculative market for credit insurance is gigantic. The US data collection agency Depository Trust & Clearing Corporation (DTCC) estimates the market at $ 22 trillion. It claims to record almost all CDS transactions that are processed worldwide and is an important source for the Federal Financial Supervisory Authority (BaFin).

The DTCC also provides information on who the biggest players in the CDS market are. About 19.2 trillion dollars are traded accordingly by so-called "dealers". This means above all the 14 major investment banks, US houses such as JP Morgan and Goldman Sachs or the Deutsche Bank , About three trillion dollars are traded so-called "non-dealers". These include hedge funds, but also companies that hedge investments.

The CDS market seems to be quite concentrated. The impression could also be deceiving. Finally, major banks also handle business for hedge funds and companies, but these are not separately identified in the DTCC statistics. In addition, the major US banks make little information to German authorities about their CDS business. For example, the Bundesbank has requested from DTCC a list of transactions in which German institutions are involved, but so far no data has been received. "Transparency is the biggest problem of the CDS market," says a BaFin spokeswoman.

No escalating speculation with Greece CDS

One thing, however, can be seen from the publicly available data: The trade in credit insurance on Greek government bonds has increased in recent months - but there is no question of an escalating speculation.

This shows the net volume of current credit default swaps. According to DTCC, at the beginning of May credit insurances for Greek government bonds amounting to a good eight billion dollars were traded on the market. However, Greece's total debt amounts to more than 270 billion euros, and this year alone, the government in Athens has to refinance public debt in the amount of about 15.8 billion euros.

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Graphic: When does Greece have to refinance how much debt?

The vast majority of investors therefore have no CDS protection for their own Greek bonds. And the amount of hedge has been comparatively constant for a long time. At the beginning of April, the DTCC was trading $ 8.4 billion in credit insurance; At the beginning of May 2009 it was 7.7 billion.

By contrast, trade with the existing Greek CDS has almost doubled. In May 2009, the sales volume was around 44 billion, in May 2010 it was just over 78.6 billion. "This development points to increased market turmoil," said Jeffrey Trester, former Fed Adviser and close watch on the CDS market. "Both sales and net volumes, however, are only slightly above the European average and are nowhere near enough to manipulate the market with Greek bonds."

Bank professor Hans-Peter Burghof also sees it this way: "It is extremely difficult for speculators to manipulate the market for Greek government bonds," says the expert from the University of Hohenheim. "As soon as some players bet on the bankruptcy of Greece, other players will take a counter-position - in the expectation that the market will remain stable."

According to Trester, the prices for CDS and the interest on Greek government bonds have not been driven up by speculation, but by real developments. "Doubts about the effectiveness of Greek austerity measures, the EU's undecided crisis policy, casualties in strikes in Athens - such events are what affect the markets on a large scale," he says. "The fact that more CDS are pushed back and forth is the result of these developments - not the cause."

Speculation wave on the euro rate

BaFin also states that speculation with credit insurance for Greek bonds is limited. Elsewhere, however, the gambling activity is on the rise. Speculators were currently waging a "war of aggression" on the euro exchange rate, said authorities chief Jochen Sanio on Wednesday in the Budget Committee of the Bundestag.

The Wall Street Journal had already warned against a planned attack on the single currency in February. As a result, hedge funds such as SAC Capital Advisors, Soros Fund Management, Greenlight Capital and Brigade Capital decided at a dinner in early February to bet on a falling euro. These are very powerful players: some of them manage many billions of dollars of capital and they borrow extra money - the amount they spend on the market is sometimes as much as twenty times their equity. Exact details of their investments do not exist: hedge funds have very little information to publish.

The Commodity Futures Trading Commission (CFTC), an independent US agency that regulates America's futures and options markets, provides evidence of increased speculation in the euro. On its website, it publishes data on trading on the Chicago Stock Exchange CME, which traded among other commodities and currency derivatives.

Now trading at the CME accounts for only a fraction of total trade, yet it is considered an indicator of trends in the foreign exchange market. According to CFTC, the trade in so-called non-commercial shorts has increased sharply. These are papers that represent a certain amount of euros - and with which financial market participants can speculate in the market. At the beginning of December, around 44 million of these contracts were traded, compared to more than 120 million at the end of April.

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In fact, not only the speculators are likely to be responsible for the euro crash. "After the Lehman crash, the euro was long considered a safe haven," says Trester. "Central banks have become so saturated around the world that now Europe is being hit by a second wave of financial crisis, and the currency is heavily burdened." Many central banks are likely to adjust their euro reserves accordingly. "And unlike hedge funds, state central banks have a much greater power to influence exchange rates."