Bloomberg View: Credit-Default Swaps Work (See Greece); Eyes in the Sky vs. Privacy

As it wrestled with Greece’s debt crisis for the past two years, the European Central Bank took pains to avoid triggering credit-default swaps written on Greek bonds. But on March 9, Greece forced payouts on swaps contracts when it required all private bondholders to forgive more than €100 billion ($130 million) of debt as part of the biggest sovereign-debt restructuring in history. The International Swaps & Derivatives Association, a trade group of large financial institutions, calls Greece’s debt deal a “credit event.” The rest of the world calls it what it is: a default.

Still, no panic has ensued. No contagion has swept over U.S. banks. Yields on strapped sovereigns, including Spain and Italy, ticked up only slightly. The financial markets are treating the CDS trigger as a nonevent.