Originally posted by KrazyHorse
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**** you, method of characteristics
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Christianity: The belief that a cosmic Jewish Zombie who was his own father can make you live forever if you symbolically eat his flesh and telepathically tell him you accept him as your master, so he can remove an evil force from your soul that is present in humanity because a rib-woman was convinced by a talking snake to eat from a magical tree...
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Asher caused the crisis.12-17-10 Mohamed Bouazizi NEVER FORGET
Stadtluft Macht Frei
Killing it is the new killing it
Ultima Ratio Regum
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Originally posted by chequita guevara View PostThey are if joint stock companies are regulated and CDSes aren't.12-17-10 Mohamed Bouazizi NEVER FORGET
Stadtluft Macht Frei
Killing it is the new killing it
Ultima Ratio Regum
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Go ahead and regulate them. More work for me to subvert the regulations.12-17-10 Mohamed Bouazizi NEVER FORGET
Stadtluft Macht Frei
Killing it is the new killing it
Ultima Ratio Regum
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Originally posted by KrazyHorse View PostWhat strawman? You're obviously concerned with the prospect of abuse of CDS, but you're willing to live with the ever-present FACT of corp. misgovernance.
Your concern over CDS is almost certainly based on nothing more than a facile understanding of their terms and some sort of scare story you read in the WaPo/NYT/WSJ.
The problem in this specific instance was that Goldman got a payout from AIG on the Lehman bonds, well in excess of what AIG could pay out given their imminent default, and only through the magical hand of Uncle Sugar could Goldman be made whole. That strikes me as peculiar and wrong.
If you're willing, please explain how the contact between AIGFP and GS worked. It's my understanding that GS payed AIGFP a premium that would result in a payout in excess of the premium paid in the event of a default on the underlying bonds. What are you trying to say when that AIG get's the money back (when and how), and that the payouts are collateral on contracts. The time duration of the CDS hadn't lapsed, the default condition happened, right?Last edited by MRT144; October 21, 2009, 14:16."I hope I get to punch you in the face one day" - MRT144, Imran Siddiqui
'I'm fairly certain that a ban on me punching you in the face is not a "right" worth respecting." - loinburger
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Originally posted by KrazyHorse View PostGo ahead and regulate them. More work for me to subvert the regulations.
You're essentially saying, nothing should be done because the law will be broken anyway, except that tax payers bear the costs of the law breaking, either in prevention or restitution. Given the SEC's paltry budget and compromised abilities (I don't even want to use that word with them), why not at least TRY and prevent some stuff before it happens rather than after at greater cost?"I hope I get to punch you in the face one day" - MRT144, Imran Siddiqui
'I'm fairly certain that a ban on me punching you in the face is not a "right" worth respecting." - loinburger
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Originally posted by Drake Tungsten View Postor that one need not own the underlying instrument to enter into a CDS contract.
I know that both KH and myself have explained the reasoning for this on several occasions."I hope I get to punch you in the face one day" - MRT144, Imran Siddiqui
'I'm fairly certain that a ban on me punching you in the face is not a "right" worth respecting." - loinburger
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You're essentially saying, nothing should be done because the law will be broken anyway
No, I'm saying that regulating them is just a bad idea. If given the opportunity I'll be happy to reverse the bad decision of the regulators via clever engineering.12-17-10 Mohamed Bouazizi NEVER FORGET
Stadtluft Macht Frei
Killing it is the new killing it
Ultima Ratio Regum
Comment
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Honestly, I hear all these scare stories about CDS. What I don't hear is evidence that they're actually being used nefariously, outside of the 1 or 2 cases I alluded to earlier.12-17-10 Mohamed Bouazizi NEVER FORGET
Stadtluft Macht Frei
Killing it is the new killing it
Ultima Ratio Regum
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Originally posted by Drake Tungsten View PostHow is it exploitable?
2. Using CDS basis spread as a key metric of default likelihood encourages increased spread in basis, which triggers capital to leave which impairs the ability of the company to do business and increases the likelihood of default.
1. can be done and 2. can't be done."I hope I get to punch you in the face one day" - MRT144, Imran Siddiqui
'I'm fairly certain that a ban on me punching you in the face is not a "right" worth respecting." - loinburger
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Originally posted by KrazyHorse View PostHonestly, I hear all these scare stories about CDS. What I don't hear is evidence that they're actually being used nefariously, outside of the 1 or 2 cases I alluded to earlier.
Even better, why should taxpayers backstop a whole host of financial products? It follows that if you believe that Goldman has the ear of Uncle Sugar, their interest is going to be considered at the expense of others."I hope I get to punch you in the face one day" - MRT144, Imran Siddiqui
'I'm fairly certain that a ban on me punching you in the face is not a "right" worth respecting." - loinburger
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Customer/Client withholds payment/withdraws capital to increase the likelihood of default and purchases CDS.
This is precisely what I referred to. So far, I know of one instance of this. Any more instances?
If there truly has been only 1 or two cases of this, then shouldn't regulatory oversight be focused on areas where there are more problems?
Using CDS basis spread as a key metric of default likelihood encourages increased spread in basis, which triggers capital to leave which impairs the ability of the company to do business and increases the likelihood of default.
This simply doesn't make any sense.12-17-10 Mohamed Bouazizi NEVER FORGET
Stadtluft Macht Frei
Killing it is the new killing it
Ultima Ratio Regum
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Requiring that somebody own the underlying would be idiotic and demonstrates how ****ing little of this you understand. The WHOLE POINT of CDS is that it disaggregates default risk from other considerations, so that you can lay off GENERAL RISKS CORRELATED WITH THAT COMPANY'S DEFAULT. Requiring somebody to own the underlying in order to trade CDS is like requiring that somebody own the underlying to trade oil futures. It causes all sorts of transactions costs to appear.
12-17-10 Mohamed Bouazizi NEVER FORGET
Stadtluft Macht Frei
Killing it is the new killing it
Ultima Ratio Regum
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