MOTUS IN WONDERLAND

"When I use a word," Humpty Dumpty said in rather a scornful tone, "it means just what I choose it to mean -- neither more nor less."
"The question is," said Alice, "whether you can make words mean so many different things."
"The question is," said Humpty Dumpty, "which is to be master - - that's all."
(Through the Looking Glass, Chapter 6) SOURCE

Credit-default swaps have a very serious logical problem because it's not clear to people when an entity is in default.

Default Swap Reforms Roiled as Aiful Tests Settlement (Update1)


By Abigail Moses and Shannon D. Harrington

Nov. 27 (Bloomberg) -- Wall Street’s system for determining payments on derivatives linked to the debt of defaulted companies is showing cracks less than a year after securities firms changed practices to avoid “Draconian” regulation.

Dealers couldn’t settle the Thomson contracts with simpler failure-to- pay procedures that produce one recovery value because they were unable to prove the electronics company defaulted.

Asked in a July conference call with investors whether Thomson still owed the money, Chief Executive Officer Frederic Rose responded, “Since I am not a qualified lawyer, I prefer not to answer that question.” Marine Boulot, a Thomson spokeswoman in Paris, declined to comment.

The ISDA determination committee was asked on Oct. 9 to rule that swaps linked to Monterrey, Mexico-based Cemex should be paid out after the company agreed with lenders to extend the maturity on about $15 billion of debt for five years.

After four weeks of deliberations, the committee was deadlocked, and the issue will now be decided by an arbitration panel set up by ISDA. The panel will rule in December.