Friday, October 31, 2008

Are CDS an innocent scapegoat in this crisis

Insight: The CDS sector is not the central villain

This crisis is due to rotten mortgages not CDS - "Perhaps the biggest misperception about the CDS sector is its role in today’s financial crisis. The root cause of the financial sector’s woes is too many bad mortgage loans. While some observers point to AIG’s use of CDS as contributing to its downfall, the truth is that the company, like others, took on the risk of too many defaulting mortgages and troubled loans. " CDS market doing ok - "While cash, securities and money markets have seized up, the CDS business still operates."

Posted by mountain goat @ 12:14 PM (419 views)
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5 thoughts on “Are CDS an innocent scapegoat in this crisis

  • “The writer is chief executive officer of the International Swaps and Derivatives Association.”

    Something must be about to hit the fan.

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  • mountain goat says:

    Life’s short – “Something must be about to hit the fan.”

    I think they are worried that they will be regulated out of profitability. What did you have in mind?

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  • mark wadsworth says:

    Exactly, that’s the whole point, the problem is more the reckless lending BY banks, not the reckless lending TO banks. Even though the ‘reckless’ bond and CDS holders deserve a kicking via debt-for-equity-swaps.

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  • mountain goat says:

    Rather than post separately here is a great article from WSJ Investors Raise Their Bets on Defaults in EU Countries . “That the perceived probability of default for any industrialized country could be that high is extraordinary,” said Simon Johnson, a professor at MIT Sloan School of Management and a former chief economist of the International Monetary Fund. “Emerging markets go through this all the time. But these are rich, prosperous economies.”

    Well that’s what the collapse of the housing ponzi scheme of the century will do matey!

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  • mountain goat says:

    Chart from the above article Greece and Ireland in trouble. Doesn’t surprise me when you see house prices in Dublin, about as high as London.

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