Comments on: Warning: Credit Default Swaps May Not Work As Advertised (And That’s Even When They Do Work) http://www.nakedcapitalism.com/2008/05/warning-credit-default-swaps-may-not.html Sun, 22 Nov 2009 07:56:24 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Ginger Yellow http://www.nakedcapitalism.com/2008/05/warning-credit-default-swaps-may-not.html#comment-9029 Ginger Yellow Thu, 05 Jun 2008 13:52:00 +0000 http://www.nakedcapitalism.com/2008/05/warning-credit-default-swaps-may-not-work-as-advertised-and-thats-even-when-they-do-work/#comment-9029 "I'm surprised more CDS buyers/sellers aren't in support of standardizing the contracts and shifting them to a regulated exchange. "<br/><br/>One of the big problems with standardisation is that what works as a credit event for one type of debt doesn't necessarily work for another, and also banks have different preferences for payouts than monolines. There are standardised templates out there for the major types of CDS, but there's always going to be a bespoke element in some asset classes. And there's also an element of self interest - the more opaque a market is, the easier it is (in principle, anyway) to arbitrage. “I’m surprised more CDS buyers/sellers aren’t in support of standardizing the contracts and shifting them to a regulated exchange. “

One of the big problems with standardisation is that what works as a credit event for one type of debt doesn’t necessarily work for another, and also banks have different preferences for payouts than monolines. There are standardised templates out there for the major types of CDS, but there’s always going to be a bespoke element in some asset classes. And there’s also an element of self interest – the more opaque a market is, the easier it is (in principle, anyway) to arbitrage.

]]> By: Sitting-Bull http://www.nakedcapitalism.com/2008/05/warning-credit-default-swaps-may-not.html#comment-8781 Sitting-Bull Fri, 30 May 2008 22:56:00 +0000 http://www.nakedcapitalism.com/2008/05/warning-credit-default-swaps-may-not-work-as-advertised-and-thats-even-when-they-do-work/#comment-8781 The whole CDS is a sucker market. If there will be one great default, you'll see if the few counterparts are capable of paying billions of dollars. It's like 100.000 homeowners insured their homes against fire at one company and all of them get burned at once. Would you bet that you get something back, even pennies on the Dollar? Think about it. The whole CDS is a sucker market. If there will be one great default, you’ll see if the few counterparts are capable of paying billions of dollars. It’s like 100.000 homeowners insured their homes against fire at one company and all of them get burned at once. Would you bet that you get something back, even pennies on the Dollar? Think about it.

]]> By: Lune http://www.nakedcapitalism.com/2008/05/warning-credit-default-swaps-may-not.html#comment-8780 Lune Fri, 30 May 2008 21:52:00 +0000 http://www.nakedcapitalism.com/2008/05/warning-credit-default-swaps-may-not-work-as-advertised-and-thats-even-when-they-do-work/#comment-8780 Given how lousy much of these contracts will look when they're examined in court (not just in overall recoverability, but in the number of loopholes, ambiguities, imprecise definitions, etc.), I'm surprised more CDS buyers/sellers aren't in support of standardizing the contracts and shifting them to a regulated exchange. Compare CDS contracts, which even experienced securities lawyers will have trouble interpreting, to options, which even retail investors can understand.<br/><br/>In addition, the fat fees made by the i-bank middlemen in an OTC market would be reduced with an exchange.<br/><br/>So why are CDS users so against putting their trades on an exchange? Given how lousy much of these contracts will look when they’re examined in court (not just in overall recoverability, but in the number of loopholes, ambiguities, imprecise definitions, etc.), I’m surprised more CDS buyers/sellers aren’t in support of standardizing the contracts and shifting them to a regulated exchange. Compare CDS contracts, which even experienced securities lawyers will have trouble interpreting, to options, which even retail investors can understand.

In addition, the fat fees made by the i-bank middlemen in an OTC market would be reduced with an exchange.

So why are CDS users so against putting their trades on an exchange?

]]> By: David Merkel http://www.nakedcapitalism.com/2008/05/warning-credit-default-swaps-may-not.html#comment-8769 David Merkel Fri, 30 May 2008 15:29:00 +0000 http://www.nakedcapitalism.com/2008/05/warning-credit-default-swaps-may-not-work-as-advertised-and-thats-even-when-they-do-work/#comment-8769 For those that are familiar with the CDS market, this is old news. Good summary piece on the vagaries of the market, though. For those that are familiar with the CDS market, this is old news. Good summary piece on the vagaries of the market, though.

]]> By: Anonymous http://www.nakedcapitalism.com/2008/05/warning-credit-default-swaps-may-not.html#comment-8766 Anonymous Fri, 30 May 2008 14:40:00 +0000 http://www.nakedcapitalism.com/2008/05/warning-credit-default-swaps-may-not-work-as-advertised-and-thats-even-when-they-do-work/#comment-8766 Kafka. Kafka.

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