Thanks very much masaccio.

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Thanks MasiccioTrying hard to understand this economic crisis. Read everything and most of your links.

Every time I start reading about “credit default swaps” I feel like my mind is being tied into a knot.

How long have CDS’s been around. My favorite term from the hearings was when Senator Harkin called all of this “casino capitalism” He wanted CDS’s to go away.

Mas “The key to understanding the issue is to realize that each of these people, and most of the other witnesses, admit that they want to use their money not in new businesses but gambling with other rich people about the future of the real economy”

But then they are fine with privatizing the gains and socializing their losses. “bleeping” white rich welfare kings driving black SuV’s

” What could go wrong there?”

Well, a whole buch of assholes could start gaming the system to profit from the failure of a corporation, or maybe a whole market sector and then if it looked as if that sector wasn’t failing fast enough to suit them, well they could have their buddies in government help them and then …

I think the whole market in all of its forms..is a ponzi scheme. Pretend money like a game of Monopoly.

Here is another exposure of that at CITI. This one took $122 billion of shareholder value.

http://www.nypost.com/seven/12…..142511.htm

The fundamental problem is this whole thing is fast and loose with no one minding the store. People with inside information can make serious money with CDSs and no one is going to come and arrest them like Martha Stewart got arrested. It is not against the law because it is unregulated.

This stuff makes sense at some level, but like anything that is unregulated it will get out of control if money is involved.

BTW: “This confidentiality enables risk managers to isolate and transfer credit risk discreetly, without affecting business relationships.”

Sounds like insider trading to me.

Leen, the concept was invented in about 1995 by a team at JP Morgan. I like this description from the Asia Times:

The credit default swap was invented a few years ago by a young Cambridge University mathematics graduate, Blythe Masters, hired by JP Morgan Chase Bank in New York

I have to admit I am tired of financial managers telling me what a great thing CDSs are, except for that minor thing where, along with CDOs, they crashed and burned the whole system. I agree they are an unproductive use of capital and encourage moral hazard. What these guys keep flogging is an idea of what CDSs were supposed to be and not how they actually functioned. But can we seriously expect an objective evaluation of these instuments from those who want to make money either by writing or trading them?

You might like to take a look at the link at Corrigan’s name. The appendix describes the strategies people execute with CDSs.

Want to know why the Senate Republicans appear to be so happy to drive the Big 3 into bankruptcy? Setting aside the (quite real) union-busting aspect, I wonder who owns the CDSs on Big 3 debt ….

Oops. Watt4Bob got there first. Sorry.

They are financial weapons of mass destruction, and have been transfered to us.

The End

Eisman knew subprime lenders could be scumbags. What he underestimated was the total unabashed complicity of the upper class of American capitalism. For instance, he knew that the big Wall Street investment banks took huge piles of loans that in and of themselves might be rated BBB, threw them into a trust, carved the trust into tranches, and wound up with 60 percent of the new total being rated AAA.

But he couldn’t figure out exactly how the rating agencies justified turning BBB loans into AAA-rated bonds. “I didn’t understand how they were turning all this garbage into gold,” he says. He brought some of the bond people from Goldman Sachs, Lehman Brothers, and UBS over for a visit. “We always asked the same question,” says Eisman. “Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.”
[snip]
There was only one thing that bothered Eisman, and it continued to trouble him as late as May 2007. “The thing we couldn’t figure out is: It’s so obvious. Why hasn’t everyone else figured out that the machine is done?” Eisman had long subscribed to Grant’s Interest Rate Observer, a newsletter famous in Wall Street circles and obscure outside them. Jim Grant, its editor, had been prophesying doom ever since the great debt cycle began, in the mid-1980s. In late 2006, he decided to investigate these things called C.D.O.’s. Or rather, he had asked his young assistant, Dan Gertner, a chemical engineer with an M.B.A., to see if he could understand them. Gertner went off with the documents that purported to explain C.D.O.’s to potential investors and for several days sweated and groaned and heaved and suffered. “Then he came back,” says Grant, “and said, ‘I can’t figure this thing out.’ And I said, ‘I think we have our story.’ ”

http://www.portfolio.com/news-…..Boom#page8

I’m sorry, but this post is delusional. Masaccio makes several very basic errors both in describing how the CDS market works and in his bizarre arguments against CDS.

“Money held as collateral for a CDS isn’t available for use in the real economy. Wall Street freely admits this.”

Wall Street does not freely admit this, because it’s not true. Posted collateral can be rehypothecated — that is, re-used by the party receiving the collateral assets. Look at a standard ISDA Credit Support Annex, for god’s sake.

“Don also says that CDS markets provide an assessment of the risk posed by a borrower, even better than a banker with access to the up-to-the minute financial statements of the borrower. Don must not think well of the acumen of his bankers, because he’d rather rely on gamblers to assess risk than his own employees.”

First of all, bondholders don’t have “up-to-the minute financial statements of the borrower,” because no such thing exists. Financial statements are filed at best monthly, and financial statements that bondholders actually care about (10-Qs) are filed quarterly. Second of all, Masaccio’s argument against relying on CDS spreads to assess creditworthiness is at odds with the elementary economic logic. A CDS spread is simply a price — it aggregates the views of many informed investors on the risk of default on the reference obligation. Are you seriously arguing against price discovery?

“Bryan thinks of CDSs as a means of self-expression. One’s detailed studies of creditworthiness are works of art? How exactly does this benefit society? Or maybe I’m going all philistine here. On the other hand, maybe CDSs can be used to express a totally frivolous bet on creditworthiness, which would really be a form of self-expression.”

Again, it’s called “price discovery,” genius. Masaccio isn’t arguing that CDS spreads don’t reflect investors’ educated views on the creditworthiness of the reference entity; he’s arguing that the entire idea of using price discovery to determine the true value of an asset is ridiculous. That kind of argument may work on starry-eyed college freshmen, but not in the real world. Also, hurling epithets like “frivolous bet” isn’t a substitute for a serious argument. When a bank lends money to a business, it’s also making a bet: it’s betting that the business will generate enough earnings to repay the loan. Does that make the loan a “frivolous bet”? Hardly.

What I don’t understand is how Masaccio can be so confident in his denunciations of the CDS market when he clearly knows very little about how the CDS market works. The word “hubris” comes to mind.

The CDS market isn’t perfect by any means, and its opacity is indeed its biggest problem right now. Why not just say, “the CDS market is very opaque, especially to outsiders, so it’s hard for me to say whether it’s a major contributor to the financial crisis”? There’s nothing wrong with saying, “I don’t exactly know how the CDS market works.”

Love the name.
So if you have insights, go here and show us in detail.

I tend to agree with EconomicsOfContempt, though I despise his polite reply and lack of cursing. We have a reputation to keep up here damn it!

In my view the ‘problem’ of CDSs came to light during the crisis which began with a combination of securitization issues and deregulation of mortgage loaning. It’s not at all clear they precipitated this current crisis. CDSs seem tangential to investing since you can have a naked CDS the way you’d place a bet on a football game or horse race without owning a team or horse. If they are to exist at all, clearly they need to be reported and somehow regulated like insurance policies. There also got to be a huge concern about using investor monies on bets instead of on real investing.

It’s a huge shock to learn about them in the middle of a crisis, but I’m not at all certain they are contributing to the crisis. More likely it’s the additional leveraging allowed by the SEC which allowed a molehill to become a mountain.

What it shows anyway is that Congress needs to be in the loop regarding any new innovation.

It’s always good to see a true believer, especially one who can hang on to market fundamentalism in the face of reality.

Are you saying that hypothecation of posted collateral is a way of moving money into the real economy? That implies first that someone is willing to lend money against securities held as collateral, and second that the borrower will use the money for some productive purpose. Maybe in Ayn Rand world.

You think price discovery is a value in the real world. We already have markets for bonds, and buyers and sellers can set prices there. Maybe you can explain how the value of giant bets on bond prices is a better way of setting prices than an auction market. After all, people have been doing research on stocks and bonds for years, and selling that expertise to holders. It looks to me like the only value of betting on the prices is that someone might make more money that way.

Again, my point is that CDSs are not productive. AIG crashed because it couldn’t post enough collateral for its bets. Taxpayers are forced to take those risks now. Was it worth the marginal contribution to price discovery, coupled with the opportunity for some people to make a pile of money betting on the viability of companies?

Corrigan of Goldman Sachs says that one function of CDSs is to enable banks to protect themselves against the failure of their borrowers. The covenants in bank loans permit on-site inspection of the day to day operations and financials of the borrower. Who has a clearer picture of creditworthiness, that banker, or some MBAs at JPMorgan Chase looking at weeks old financials and information spread around by word of mouth, and whatever leaks to the Wall Street Journal, supplemented by general information about the economy and the industry and whatever they can google?

I think credit default swaps are a contributor to the credit crisis, not that they are the cause. So do a lot of people, including Joseph Stiglitz:

Of course, the current problems with our financial system are not solely the result of bad lending. The banks have made mega-bets with one another through complicated instruments such as derivatives, credit-default swaps, and so forth. With these, one party pays another if certain events happen—for instance, if Bear Stearns goes bankrupt, or if the dollar soars. These instruments were originally created to help manage risk—but they can also be used to gamble. Thus, if you felt confident that the dollar was going to fall, you could make a big bet accordingly, and if the dollar indeed fell, your profits would soar. The problem is that, with this complicated intertwining of bets of great magnitude, no one could be sure of the financial position of anyone else—or even of one’s own position. Not surprisingly, the credit markets froze.

GMAC Extends Debt Swap, Sweetens Terms to Boost Participation
Credit default swaps in action…the bettor on failure keeps collecting more bonuses as the creditors position gets weaker.
The execs go GMAC, GM and Chrysler are doing what Trump did with his casinao and real estate loans…making deals with the bankers…take this or nothing only not quite the same. With CDS the holder has the borrower in a position of weakness. It is a game of predator versus vulture.
What is interesting…the company that owns Chysler bought 1/2 of GMAC so there is a big takeover game going on behind the scenes whwere the arm twisting is going on with congress the white house and the investor/bettors.
It is really nasty SEC should we hung out to dry with Bushco…a full investigation by an independent council with full subpeona powers. How they let large pension funds, University endowment funds and state and local government retirement funds get taken to the cleaners with 50% losses need vetting to the people that took the losses.

Don is telling us that banks can lend more money to borrowers

if they don’t have to worry about whether the borrower can pay it back.

And he seems to think that’s a good thing. Robert Pickel of the International Swaps and Derivatives Association (ISDA) agrees on both points.

if they don’t have to worry about whether the borrower can pay it back.

The math on their models predicting when they would have to pay out is faulty.
Ask then to rework the math to take into account what has happened today.

Don also says that CDS markets provide an assessment of the risk posed by a borrower, even better than a banker with access to the up-to-the minute financial statements of the borrower.

How does that work when the bond rating agencies were in the tank for big business that wanted better credit ratings? If the CDS market could manage risk then would not the current economic crisis have been avoided?

You forgot the main reason for the existence of CDO’s and other derivatives: FEES big fat FEES for someone with a algorithm that will spit out what ever answer you seek so you can create a “market” without an accepted baseline.

I was one the first people in the 80’s to do financial futures hedging and credit swaps. Back then we had to have the financial instruments to do the deal and the backroom boys watched us like a hawk since they had no idea what we were doing. I can tell you that the traders at the banks have always worn knee pads as they gamble with the depositors money. I got out of the business when brokers started getting really “creative”.

The entire securities business needs to be overhauled. If you invest in an equities you think you are investing in a company that has the potential to produce a profit. What you don’t know is that the stock price of the company has more to do with some trader laying off a bet on the volatility index, then either buying or shorting the basket of stocks to make a profit on the derivative.

Sunshine is the best disinfectant. Once we see the assets these banks are really holding the economy will fall faster, but it’s the only way to fix the problem. Without full disclosure the problem will just fester into another systemic meltdown.

Shouldn’t they be called Credit Swamps? What a joke nothing to see here.
jo6pac
The race to the bottom continues.

Bryan thinks of CDSs as a means of self-expression. One’s detailed studies of creditworthiness are works of art? How exactly does this benefit society? Or maybe I’m going all philistine here. On the other hand, maybe CDSs can be used to express a totally frivolous bet on creditworthiness, which would really be a form of self-expression.

It expresses the WisdomMadness of the Market Crowds. When Bill was President every stock went up regardless of fundamentals you could not lose money in the stock market.
Now Bush has shattered that confidence and even companies that make money can’t get loans because the banks don’t believe anyone!
CDS magnify whatever the markets emotional state is think of it like Booze.
If you believe in the economy CDS’s make you everyone’s best friend. If your depressed CDS’s make you want to jump off a bridge.

How much information would we need to have a safe market? What about hedge funds as long as they don’t have to report their strategies/bets they can influence the market.
Is Congress even considering what you think is the level of Sunshine we need?

Easy to understand your headache. The problem is that short-sales in general are counterintuitive to the overwhelming majority of us who think in terms of debit/credit/investment/asset, etc. The benefit of this diary is that the spokesmen actually clarify the matter – nice work, masacchio.

Currently, we are in the middle of a national-level short sale. But the metaphor could just as easily be robbery, pillage, rape, or whatever you like.

Good article, Masaccio. The problem with “confidentiality” is total lack of transparency. In the case of the automakers, for example, we don’t know who wins by cashing in CDSs if the car companies fail; we don’t know who is on the hook for payment. Is it the American taxpayer, through AIG? We know that some Republican lawmakers want to kill the unions. Perhaps some of them also stand to make a lot of money by holding CDS contracts on the automakers.

One question – don’t most of these contracts have an expiration date? Can’t lawmakers let current contracts expire and make naked CDSs illegal?

CDS’s are gamboling sooner or later the House always wins, unless the House is dumb enough to bet at their own games.

Most CDS contracts have a 5-year term, and will expire then. Congress could make naked CDSs illegal. The people at the hearing seem to think there are other things that would make things better, but they all favor changes that would benefit their own business models.

We can see that the entire CDS market has caused substantial problems. We need to see a justification for their existence that justifies the risk they create, and that explains how they contribute to the real economy. So far, I’m not seeing it.

If only ordinary people could borrow on their credit card debt. The more debt they had the more they could borrow against that debt. That’s what investment banks and hedge funds have been doing for years. Is that no so?

“Money held as collateral for a CDS isn’t available for use in the real economy. Wall Street freely admits this.”

Wall Street does not freely admit this, because it’s not true. Posted collateral can be rehypothecated — that is, re-used by the party receiving the collateral assets. Look at a standard ISDA Credit Support Annex,

When the economy is bad and everyone is cashing in CDS like now then the collateral held is not enough to cover the losses.
If enough collateral was held we would not be in our current mess. The math that shows how to make money off of CDS’s is underestimatimating the amount of collateral needed.

“rehypothecated” is a word that really informs.

AIG crashed because it couldn’t post enough collateral for its bets.

Which gets back to the point I was making and which EconomicsOfContempt fails to get. If price discovery had worked, then AIG’s bets would have been appropriately covered but they weren’t not just by a little but to an epic extent. The extreme degree to which CDSs were not priced relative to the risk makes disingenuous and revisionist any contention that they were anything other than a con. This was not a miscalculation. It was intentional. As the saying goes, it wasn’t a bug. It was a feature.

AIG’s Joseph Cassano was basically collecting free money from CDS buyers because he never looked beyond the sale to the actual possibility of having to pay off on any of the CDSs he was selling. So no there was no pricing mechanism, no price discovery, just a hook for marks. At the same time, I have little sympathy for buyers of CDSs. As I keep pointing out in these discussions, everyone concerned could do the math and run the numbers as well as everyone else. They all knew it was shit. They all knew it wouldn’t last. But they kept playing the game anyway because as long as it was going on they could make money off it.

Here’s a nice description of hypothecation.

Banking: pledging property to secure a loan. Hypothecation does not transfer title, but it does transfer the right to sell the hypothecated property in the event of default.
Securities: pledging of securities to brokers as collateral for loans made to purchase securities or to cover short sales, called margin loans. When the same collateral is pledged by the broker to a bank to collateralize a broker’s loan, the process is called rehypothecation.

Suppose the hypothecator has defaulted, either by failure to make a payment or some technical default, like failure to meet a financial covenant. The lender makes demand for delivery of the collateral. Either the hypothecator has to find cash or other assets to deliver, or the hypothecator is exposed to the person who actually owns the collateral. This explains my view that this process isn’t likely to produce cash for the productive economy.

Exactly! And like other gambling debts, there’s no reason our court system should enforce any payoffs. And there’s no reason that society as a whole should payoff the fools who won these bets. It’s total insanity.

Hypothecation is another word under some circumstances for “embezzlement” or conversion as where a broker uses his customers stock without his or her knowledge as collateral for his/her own loan or trade.
I’ve tried reading Keynes “General Theory” and I won’t claim to understand it. I don’t really understand how what has come to be called “Keynesian economics” as taught in college was derived from it. But Keynes makes a few very good points about risk and markets where he is setting up his theory of interest. He describes modern securities markets as having been set up as casinos where the object is not for investors to determine the prospective yield of assets over their whole lives but for speculation where the object is to guess what other people think a security is worth. There’s a famous quote by Keynes that “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes a bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. The measure of success attained by Wall Street, regarded as an institution of which the proper purpose is to direct new investment intothe most profitable channels in terms of futur yield, cannot be claimed as one of the outstanding triumphs of laissez faire capitalism–which is not surprising, if I am right in thinking that the ebst brains of Wall Street have been in fact directed toward a different object.”

Keynes prescription was to have “the State, which is in a position to calculate the marginal efficiency of capital goods on long views and on the basis of general social advantage, taking an ever greater responsibility for directly organizing investment; since it seems likely that the flucuations in the market estimation of the marginal efficiency of capital, calculated on the principles I have described above, will be too great to be offset by ny practicable changes in the rate of interest.”

“It’s always good to see a true believer, especially one who can hang on to market fundamentalism in the face of reality.”

I’m a market fundamentalist because I think price discovery is a good thing? Huh? On the ideological spectrum, I’m roughly on par with Paul Krugman. What’s especially ironic is that you’re relying on the same exceedingly simplistic economic arguments that are the signature of market fundamentalists. It’s called “nuance,” kid. The world isn’t black-and-white.

You weren’t arguing that the CDS market doesn’t achieve price discovery, you were arguing that the whole idea of price discovery for creditworthiness being beneficial is wrong. And that’s just silly. If you have a (serious) argument for why CDS spreads don’t accurately price creditworthiness, then let’s hear it. But I doubt you do, given your obvious lack of knowledge about the basic workings of the CDS market.

“Maybe you can explain how the value of giant bets on bond prices is a better way of setting prices than an auction market.”

It’s sad that I have to explain it, but I will. Corporate bonds are thinly traded, because the number of issues of a given corporate bond is very small, and because they’re a lot more expensive than, say, stocks. The initial auction accurately prices the bond at the time of issue, but believe it or not, the creditworthiness of debtors often changes over time (it’s true, I swear). Because corporate bonds are thinly traded, the much thicker CDS market more accurately prices creditworthiness. If you don’t think accurately pricing corporate debt is valuable to the real economy, then you simply don’t belong in serious discussions about the economy.

“The covenants in bank loans permit on-site inspection of the day to day operations and financials of the borrower. Who has a clearer picture of creditworthiness, that banker, or some MBAs at JPMorgan Chase looking at weeks old financials and information spread around by word of mouth, and whatever leaks to the Wall Street Journal, supplemented by general information about the economy and the industry and whatever they can google?”

OK, you’re officially clueless about the entire financial system. Have you ever even set foot inside an investment bank or an asset management firm?

As for Stiglitz’s comments about opacity, I already said that opacity is the biggest problem in the CDS market. I agree that opacity, along with the exceedingly tight-coupling in the financial markets, is at the root of the financial crisis. But the biggest contributor in that regard — by far — was CDOs. Mezzanine, senior, and super-senior tranches of CDOs are now worthless. But the CDS market is still working pretty well.

I suggest you take some time to learn about the CDS market before you write another fact-free post about it.

Reminder to commenters to please discuss ideas and not make this something personal about the other participants, thanks.

Bonds are thinly traded? How about CDSs. According to the DTCC, there are a total of 101,559 CDSs with respect to the top 1000 reference entities, an average of 1001 each. The report says that there are 5,574 contracts outstanding for GM. I’m supposed to admit that whatever trading there is among dealers in GM CDSs is adding so much to price discovery that it is worth the risk these things entail.

We know that taxpayers are footing the bill for the AIG CDSs, hoping that the Treasury will get that money back. Therefore I think the burden is on you to show that the possible improvement in price discovery, and any other benefit you think CDSs have, is worth the risks imposed on taxpayers. I don’t think so. Why do you?

“Bonds are thinly traded?”

Corporate bonds, yes.

“According to the DTCC, there are a total of 101,559 CDSs with respect to the top 1000 reference entities, an average of 1001 each. The report says that there are 5,574 contracts outstanding for GM.”

That’s before netting. TriOptima — the firm that does compression runs — estimates that net CDS is about 1/10th of gross (though it differs depending on the underlying). Until the DTCC starts publishing data on novations, their numbers are useless.

“We know that taxpayers are footing the bill for the AIG CDSs, hoping that the Treasury will get that money back. Therefore I think the burden is on you to show that the possible improvement in price discovery, and any other benefit you think CDSs have, is worth the risks imposed on taxpayers. I don’t think so. Why do you?”

The problem with AIG was that they were the only major CDS player that only sold protection. Every other major CDS dealer hedges their exposure through novations; that’s Risk Management 101. Insurance companies are prohibited from selling their CDS contracts — i.e., buying an offsetting CDS through a novation. The monolines get around this by writing financial guaranty insurance on transformers that do their CDS bidding. For some bizarre reason, AIG chose not to use a captive transformer, and instead used AIG Financial Products as its CDS arm. That arrangement still didn’t allow them to sell their CDS, which meant they were stuck as a huge net seller on the Day the Music Died. That’s why AIG failed. However, AIG’s failure says something about the stupidity of AIG; it doesn’t say anything about the usefulness of CDS. AIG was a special case in the CDS market; no other major CDS dealer doesn’t sell the CDS they write to hedge their net exposure.

AIG’s failure doesn’t prove that CDS are useless, just like WaMu’s failure doesn’t prove that mortgages are useless. I can distinguish between inherently toxic financial instruments (like mezz CDOs) and misuse of valuable financial instruments. Can you?

Your comments are a mite condescending. I’ve tried reading what I can about CDS’s and CDO’s and frankly I don’t understand it. I do understand that the world got along quite well without them until the 1990’s when they were invented. I’ve also read some very trenchent criticism of them by Nobel winning economists. I’ve read that the $64 trillion or take another number CDS overhang is a major problem with Paulsen and Bernanke expressed worry about. At this point, individuals who insert themselves into an online discussion defending these things have the burden of proof and persuasion in my humble opinion of explaining themselves in clear understandable layman’s terms that what we’ve been reading and hearing about is wrong and here’s what’s right. They have absolutely no standing to come in complain about people not having experience with investment banking firms and asst management firms, (some of the largest of which have ceased to exist at this point because of this alleged problem).

Being a taxpayer who now has “skin in the game” with my government’s investments in some of these investment banking firms and asset management gives me and every one of us every right to be involved in “serious discussions of the economy.” My personal opinion is that most of the innovative instruments like derivatives and these CDS’s ought to be outlawed. If you disagree, if you have constructive things to say in correction or even in criticism, I know I’d like to hear from someone who claims knowledge and expertise. But please do not talk down to people like massacio or people like myself who are not investment or finance professionals.

If you lend to or own the reference entity or have financial exposure to its ongoing solvency (i.e.), the CDS can be a legitimate hedging strategy.
This is a relatively thin market with exception to “vanilla” swaps, which lends itself to irrational behavior with respect to arbitrage and other beneficiaries of imperfect information. The problem is sunshine, and when the legislation was passed (see Phil Gramm) omitting it from regulation under the esisting derivatives framework, all hell broke loose.
File this whole mess under “False Profits,” along with all of the bank/financial company’s and most of the stock market’s gains of the last [pick a number] years.

Rock on Masaccio.

OK, you’re officially clueless about the entire financial system. Have you ever even set foot inside an investment bank or an asset management firm?

This is hilarious. No doubt you have and like so many of your colleagues you probably never saw the housing bubble coming (which we benighted souls saw in 2005) until it burst in the summer of 2007. And I’m sure like them you correctly foresaw that it was no big deal and that markets had already factored it in by Fall 2007. Our talk of recession at the time, you folks, thought with your deep wisdom to be alarmist nonsense. I hope you see where I am going with this. You are making a claim to expert knowledge but if you have been disastrously and consistently wrong it is a ludicrous claim to make.

That the world’s biggest insurance company goes kablooey over its CDS exposure is just a blip for you. Again defending those in the market who have been wrong about everything, that have essentially collapsed the financial system, you might, I don’t know, just listen occasionally to those of us who got it right. A startling concept for you I’m sure.

I agree that unregulated CDSs were never a legitimate form of hedging. They were just junk insurance, fig leaves for investments that otherwise could not be justified.

Good to know there was only one dumb ass in the CDS market. I was thinking there might be more.