What is the impact of catbonds — ICAP announced in reuslts it is moving mre aggressivily into this area – yet another securitized product only seems this is abject gambling.

Also could you explain previous question on liability?

Bondinvestor, I’m with you: increasing recklessness from liability limitation is a big worry for me with hedgies. Remember, Meriwether got a second chance to lose his investor’s money. This is what the system learned, that no failure is too big to end your career.

I do remember when Lloyd’s kissed a chainsaw. One reason why the financial system generally may have learned little from it was the unique internal structure of Lloyds.

To the extent that the contracts are standardized (and I understand the ones written a few years ago were not only non-standard, but even some were not juridically valid, and some are still outstanding) they are only in terms of contract boilerplate. They are NOT standardized in respect of their terms, they are customized.

The government ought to do something similar with the GSEs — pump a judicious amount of capital in and then turn them loose. No more ‘implicit’ guarantee.

Don’t take too much comfort about CDS exposure being limited, as opposed to unlimited in the case of loss reinsurance. Lots of players have over 20 to 1 in actual leverage before taking into account leverage through their book of trades. Plus, it’s virtually guaranteed that a lot of purported hedges have significant missmatches. Like last year, some people were long ABX AAA, and short ABX BBB-, and got hammered when losses on their long position swamped gains on their short position. If you get one player crack up from a big missmatch in their purpotedly offsetting positions, that can cause some of their highly leveraged counterparties and lenders to also crack up.