These instruments are indeed ‘weapons of mass financial destruction’ equivalent in their way to neutron bombs: if they go boof, they leave the buildings but kill the money. It would be perhaps the greatest show in the history of the world since the cometary vaporization of 13 kya, but we must might get the financial equivalent of a middling Ice Age out of it. . . . I’ll wait for the movie, thanks.

I say: Yes they are laughing. Nothing like a good transfer of taxpayer’s money to their pockets to get a good laugh

I dimly recall a BIS chart which put the economic exposure at 2% of notional across the entire market (anyone with better factoids encouraged to speak up). Of course, that level isn’t static. It ought to go up with corporate credit deteriorating and volatility increasing. And the amount of CDS written relative to cash bonds tends to be higher on distressed credits.

Anon of 3:34 PM,

I don’t think there is any way of knowing, since this is an OTC market, but with London a bigger hedge fund center than the US, and some foreign banks being very active in CDS, like Paribas and UBS, a high proportion has to be overseas.

Flash: JPM looking to issue capital – MS says it is a strategioc decision to maintian its relative capital position advanatage. yeah…ok

As of March 31, the index includes about 80% (9,743 securities). Not included in the index are asset-backed securities, municipal bonds, junk bonds, convertibles, preferreds and floating-rate securities.

As an aside, public holdings of US T-bills surpassed $1 trillion for the first time in March.

Everyone digest this, fully. When you’re finished you will understand why the Fed will NEVER let any bank fail, EVER. When you understand that, that is their mission, you will understand their behavior. Banks due to counterparty risk CANNOT fail. Period.

http://www.iht.com/articles/2008/04/15/business/bear.php

Bear Stearns said that regulators were scrutinizing “the bidding process for municipal derivatives that are offered to states, municipalities and other issuers of tax-exempt bonds.” It also said it was cooperating with the U.S. Department of Justice and the SEC.

Bear Stearns’s municipal market activities since the early 1990s are also under investigation by the justice department’s antitrust division, the bank said. The investigations by the SEC and the justice department span the securities industry, the company said.

In the same filing, Bear Stearns disclosed a civil investigation by the Federal Trade Commission into its EMC Mortgage unit seeking documents and information relating to business and servicing practices.

Last month, the bank said, it received notice from the trade commission saying that its investigators believed EMC and Bear Stearns violated consumer protection laws in connection with servicing activities. The commission has offered to let Bear Stearns resolve the matter though talks before filing a complaint, the company said.

The filing also noted that liquidators of two Bear Stearns mortgage hedge funds that failed last year filed a suit this month against the Bear Stearns and the auditor Deloitte & Touche. The suit, which seeks more than $1 billion in losses plus damages, accuses the company and the auditor of failing to fulfill fiduciary and professional duties.