as for the seemingly whimsical way lehman was abandoned, aig rescued, was wondering if the fed thought that MS probably needed a lifeline and therefore sacrificed no4 to leave hands free for no2?

as for exchange traded as discussed by Yves, would that reveal even uglier skeletons in the closet? in the long term, sure it’s viable but could the move result in those little nuggets of information that have been kept away from the market for their own good?! (that was sarcasm, btw)

But there is still every reason to have all new CDS be exchange traded. But that requires standardization of contracts and terms, which takes time to implement.

I’m all in favor of the idea and in previous discussions have advocated forcing more instruments to be exchange traded. But it takes time, unfortunately.

Via Jim Cramer on TSC ($):

“OK, we immediately need to change the rules on these credit default swaps. This is a market — not unlike the old options markets, or stocks before federal regulations were created — where there is no regulation whatsoever. I believe this market needs to have sunlight shining on it to disinfect it. I believe that institutions should not be allowed to take this insurance if they don’t have an economic stake. That just should not be allowed. These transactions should be closed out and from now on, all trades must be posted on an exchange for scrutiny, an exchange like the New York Stock Exchange. Any non-disclosed contract should be cancelled going forward.

These rules should be made immediate going forward. That way, these insurance contracts cannot be used to destroy the underlying security or company. Right now, this stuff us like taking a life insurance policy out on someone you hate, and it is legal to murder them. That’s not sound policy. Obviously these contracts, even if there is an economic interest, need a regulatory body, an SEC of their own.”

Matthew Dubuque: "collapse in the Japanese bond market…but it was obviously a trigger"

No that was the effect, not the cause. & there were others that forcast the drop who participated in those sponsored championships, i.e., Robert Prechter

What caused the 87 drop was an excessively tight monetary policy. In fact, real gdp dropped further & faster than at anytime since the Great Depression.

In seriousness, folks, I don’t know how anyone can advocate ZIRP. What has ZIRP + quantitative easing done for Japan? Certainly not improved their situation. They’re still stuck in the malaise they have been for almost twenty years, and all that liquidity is zooming around the globe for carry trades.

Am I missing something?

Roubini is a little off the mark here.

I was completely short the market 6 weeks before the 1987 crash, while I was entered in the National Trading Championships audited by Arthur Andersen.

What was obvious a major cause of the crash at the time (and caused me to be extraordinarily bearish 6 weeks before anyone else), was the collapse in the Japanese bond market. NOBODY discusses that to this day, but it was obviously a trigger. The Fed should do a paper on it; maybe KC would be up to it.

That’s what I relied on, I was 100% right and ahead of everyone else. Rogoff does not understand what happened in 1987 fully.

Matthew Dubuque

And exactly where do they get this $360 Billion from?