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Credit Default Swaps And Club Med

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Does this not apply to Sovereign default ... I should well imagine that UK bank/insurance involvement is significant.

Tricky to know who is on the other side of the deal. The banks are the dealers, but they are unlikely to have a significant exposure to any one default - they are more likely to be a broker in the deal. I imagine that insurers may be in on it, but would presumably limited their exposure to any one event.

Remember after Lehman. Prior to that, the press was full of stories about how the world would be taken down by the CDS, potentially just by the default of one party, yet there was relatively likely knock on after Lehman went under. In the last couple of years, firms have been a lot more careful about creating an exposure to a single party.

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Tricky to know who is on the other side of the deal. The banks are the dealers, but they are unlikely to have a significant exposure to any one default - they are more likely to be a broker in the deal. I imagine that insurers may be in on it, but would presumably limited their exposure to any one event.

Remember after Lehman. Prior to that, the press was full of stories about how the world would be taken down by the CDS, potentially just by the default of one party, yet there was relatively likely knock on after Lehman went under. In the last couple of years, firms have been a lot more careful about creating an exposure to a single party.

The taxpayer, they just don't know it yet :lol:

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It's probably so complicated no one fully understands the implications, although probably at the end of the chain it's the taxpayer (which they've never been informed off) more specifically the US taxpayer as they own AIG and everything seems to end up at AIG.

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http://www.nytimes.com/2011/06/23/business/global/23swaps.html?_r=1&ref=business

It’s the $616 billion question: Does the euro crisis have a hidden A.I.G.?

No one seems to be sure, in large part because the world of derivatives is so murky. But the possibility that some company out there may have insured billions of dollars of European debt has added a new tension to the sovereign default debate.

In years past, when financial crises in Argentina and Russia left those countries unable to make good on their government debts, they simply defaulted. But this time around, swaps and other sorts of contracts have become so common and so intertwined in the financial markets that there are fears among regulators and financial players about how a Greek default would play out among derivatives holders.

........

Even regulators seem unsure of whether a Greek default would reveal such concentrated risk in the hands of just a few companies. Spokeswomen for the central banks of both Europe and the United States would not say whether their researchers had studied holdings of such contracts among nonbank entities like insurance companies and hedge funds.

It would appear no one has fully looked, or the hidden AIG is in fact AIG.

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Does this not apply to Sovereign default ... I should well imagine that UK bank/insurance involvement is significant.

I also believe that CDS's are all non-standard inasmuch as some may be payable on the event of a credit event whereas others are only due when a full blown default occurs...

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It's probably so complicated no one fully understands the implications, although probably at the end of the chain it's the taxpayer (which they've never been informed off) more specifically the US taxpayer as they own AIG and everything seems to end up at AIG.

I thought that was basically what happened - for all the talk of 'little nominal risk', had AIG gone down (was it something like $130 billion down?) then the whole CDS-counterparty-failure nightmare would have unfolded.

All it takes is for some not-particularly-rogue trader somewhere to decide that states will never default, and he can make easy money with one sided CDS bets, to run up a gigantic exposure.

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I also believe that CDS's are all non-standard inasmuch as some may be payable on the event of a credit event whereas others are only due when a full blown default occurs...

...what like all cars crashing at once? :unsure:

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The taxpayer, they just don't know it yet :lol:

Well if a lot of this stuff is at AIG as interestrateripoff suggests (and i am sure he is right) it is a case of what goes around comes around. The US taxpayer got fat on equity release (well had seven fat years)by keeping the ponzi going and CDOs backed by credit default swaps was the final solution to get a whole new row of chavs at the bottom of the ponzi pyramid.

Now it is pay back time. Though I am sure a lot of this c**p ended up on the RBS balance sheet etc. so we are not off the hook either. Plus I guess this s**t may even be on the balance sheets of public sector pensions, but with special dispensation fromGod these contracts will have to be paid.....yep the UK tax payer again.

Edited by crashmonitor

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It's probably so complicated no one fully understands the implications, although probably at the end of the chain it's the taxpayer (which they've never been informed off) more specifically the US taxpayer as they own AIG and everything seems to end up at AIG.

Of course it's complicated. You HAVE to make it as complicated as possible if you want to fleece the sheeple, as it were.

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If you think there is a dummy and you aren't sure who that dummy is...then get a mirror...

Oh no. As has been said many times, the dummies haven't been born yet.

Mind you, I've said before, If we're lucky, the children will have to pick up the tab ........ if we're unlucky, we will. Nice hey?

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It's probably so complicated no one fully understands the implications, although probably at the end of the chain it's the taxpayer (which they've never been informed off) more specifically the US taxpayer as they own AIG and everything seems to end up at AIG.

You misspelt RBS.

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CDS can more or less be written by anyone on anything with almost any conditions. They are largely unregulated outside of the law of contract. In some respects they form pretty near a 'free market' of the sort that so many on here claim to idealise. As such if the theory of efficient markets does apply then the risks will have been priced correctly. The problem is that the fact they are not openly traded on a regulated exchange means that there is not sufficient price signals to allow risk to be assessed accurately or to determine the full liabilities of all parties in the event of a failure. If that has happened then the unregulated free market mechanism might not be the route to nirvana some assume.

Edited by stormymonday_2011

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I thought that was basically what happened - for all the talk of 'little nominal risk', had AIG gone down (was it something like $130 billion down?) then the whole CDS-counterparty-failure nightmare would have unfolded.

I wouldn't have been a nightmare, it would have been a great relief as it would have wiped out most banksters.

Now it is indeed a nightmare, for the taxpayer!

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Tricky to know who is on the other side of the deal.

Nah, most of the world's CDS can be traced back to Bill the homeless drunk living under Hammersmith bridge. Some banker guys came over and said to him "We need to reduce the risk profile of our portfolio. We will give you some money, if the Greeks default, you will have to pay us some money". Now all this was a bit much for Bill in his haze, but the bit about giving him money managed to get through. Thus Bill took the cash. He is happy and the banks, having offloaded their risk, are also happy.

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Nah, most of the world's CDS can be traced back to Bill the homeless drunk living under Hammersmith bridge. Some banker guys came over and said to him "We need to reduce the risk profile of our portfolio. We will give you some money, if the Greeks default, you will have to pay us some money". Now all this was a bit much for Bill in his haze, but the bit about giving him money managed to get through. Thus Bill took the cash. He is happy and the banks, having offloaded their risk, are also happy.

Well, that's OK then. For a moment I was worried..

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I wouldn't have been a nightmare, it would have been a great relief as it would have wiped out most banksters.

Now it is indeed a nightmare, for the taxpayer!

I may be left-leaning, but I suspect that wiping out the entire investment banking sector would have some negative consequences.

The problem was/is that these rescues seem to have been entirely free. The price should have been a top to bottom reform and re-regulation. Instead, it's been like driving an alcoholic straight from the Priory check-out to the off license..

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The banks wrote insurance policies for all thsi Greek debt. They took the premiums, fees and paid their staff bonuses. They never actually ahd the resources to meet the potential claims. Now they are using their political clout to avoid having to confront the fact that the insurance was a scam.

I offer to insure Wembley stadium at a very good rate even though I don't have the means to meet any claims. I am simply betting that Wembley Stadioum won't burn down anytime soon. I then offer Arsenal a deal on the Emirates and so on...White Hart Lane is next and so on... As long as nothing happens for a few years I then float Scam Insurance Plc.

Whoever sold the credit default swaps a posh name for loan insurance either had the means to pay or they didn't. If the claims go in a lot of Wall Street bankers will get done for fraud and join Madoff. This is undoubtedly worst than Madoff.

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CDS can more or less be written by anyone on anything with almost any conditions. They are largely unregulated outside of the law of contract. In some respects they form pretty near a 'free market' of the sort that so many on here claim to idealise. As such if the theory of efficient markets does apply then the risks will have been priced correctly. The problem is that the fact they are not openly traded on a regulated exchange means that there is not sufficient price signals to allow risk to be assessed accurately or to determine the full liabilities of all parties in the event of a failure. If that has happened then the unregulated free market mechanism might not be the route to nirvana some assume.

Surely there's a way to work an evil statist snake into this legend of free market eden? :lol:

CDS are indeed a classic example of what happens when everyone chases short term gain at the expense of the wider stability of the system.

IBG YBG is about as a forward looking as it gets with these guys.

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  • 311 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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