The Financial Times reports that that $45 trillion figure that most of us have been using for the size of the credit default swaps market is woefully dated. The International Swaps and Derivatives Association will announce today that outstanding contracts now total $62 trillion, up from $34.5 trillion a year ago. Institutional Risk Analytics gives […]
Read more...There are two useful but frustrating articles addressing different aspects of the extraordinary measures implemented by the Federal Reserve in the last ten days, in particular the bailout of Bear Stearns. A New York Times article, “What Created This Monster,” is very much worth reading despite its shortcomings. It attempts to say how we got […]
Read more...An article in the Financial Times, “Credit crisis lurches from bad numbers to bad writing,” by Arturo Cifuentes, contains a stunning revelation: the deal documents governing CDOs are in many cases so badly written that, for instance, it isn’t clear how to handle a default. To give readers a sense of proportion, the contracts governing […]
Read more...This post comes in significant degree from jck at Alea, who has access to the report, “Counterparty risk in credit markets,” from Barclays Capital and was kind enough to post the summary of key points. Despite the link, I seem unable to download it, but the summary is sufficiently detailed that I don’t think I […]
Read more...It is truly amazing how disconnected credit instruments are from other tradeable financial investments. The Fed released the minutes from its latest Open Market Committee meeting, which lowered the growth forecast and increased the inflation forecast. That shouldn’t be cheery at all; the stagflationary 1970s were a terrible time for equity valuations, but the US […]
Read more...Those of us who have an eye for trouble have been nattering about the credit default swaps market from time to time. This $46 trillion unregulated market has suddenly captured the imagination after AIG reported in an 8-K filing that it had certain weaknesses in its internal controls and that the value of its credit […]
Read more...A very good, accessible article, “CDS market may create added risks,” by Satayjit Das appears in today’s Financial Times. We’ve sometimes discussed the fact that credit default swaps, which effectively are insurance policies against defaults, suffer from considerable counterparty risk. A policy is only as good as the entity that wrote it, and many of […]
Read more...We’ve discussed before how credit default swaps, which is in essence insurance against the default of particular issuer or index, poses risks to the financial system via counterparty failure. The notional amount of CDS is $45 trillion, but much of that is believed to be fully or nearly fully hedged via offsetting positions. The problem […]
Read more...Disclosure (or apparent disclousues, who knows if we will ever learn the true story) of how equity derivatives trader Jerome Kerviel caused the biggest trading loss in banking history continues to dribble out. Today, Bloomberg in “Societe Generale Says Trader Built Up Positions of EU50 Billion,” gives more detail on how the trader caused so […]
Read more...My only comment on the attempt to alleviate concerns about the statement on the $45 billion credit default swaps market by the International Swaps and Derivatives Association: while the logic of Bill Gross’ $250 billion loss estimate was subject to question, there doesn’t appear to be any analysis supporting what amounts to an assertion by […]
Read more...Every cloud has a silver lining, and one in this market downturn is option trading. Bloomberg reports that stock option volume has increased considerably. And in another sign of market stress (or maybe just random stupidity), jck at Alea reports a “mass order error” on Globex led to a big order imbalance, a lot of […]
Read more...Wolfgang Munchau provides nice succinct overview of some of the recent debate surrounding a source of financial system risk that has suddenly captured the popular imagination: credit default swaps. For those new to the concept, credit default swaps are effectively insurance. A protection seller (think insurer) takes the risk of default on a reference entity […]
Read more...In less than a week, we have had two lame front page stories at the Wall Street Journal that bear a strong resemblance to each other. I am wondering whether this is a function of holiday short-staffing or a new Murdoch template. “Cursory story” is far too kind a description for this paradigm. The current […]
Read more...I am sticking my neck out a bit on this post, since the credit default swaps market doesn’t garner much coverage, so any readers who are involved in this busines are encouraged to comment. Yes, there are frequent references to what changes in CDS prices mean about the credit-worthiness of particularly names, but there is […]
Read more...The rating agency Fitch for some time has warned of lax lending practices in the commercial real estate market. Bloomberg reports today that prices of derivatives protecting investors against default of the highest-rated commercial real estate securities have appreciated sharply in the last month, signaling the expectation of defaults ” rising to the highest level […]
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