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I would not disagree with you regarding the slippery slope. It's very tempting and I, personally, expect the govts to succumb to the temptation. However, I do believe that in certain cases (e.g. UK Plc) there's just no alternative, as it's a matter of short-term survival.

Sorry, meant 'mini'. This sorta goes back to the M-LEC super-SIV idea that was floated briefly at some point to rescue the banks.

Maybe, but we're talking about a catastrophic weakening being very bad. On the other hand, a moderate weakening of the ccy can work wonders. Look at trade-weighted GBP, down almost more than 25% from its 2007 peak. Currently, it's the only thing properly helping the UK Plc survive.

Yes, "Maiden Lane"'s are the Fed mini-super-SIVs to house the AIG stuff...

That's a silly thing to say... There's nothing very badly wrong with CDS as an instrument, much like there's nothing wrong with vanilla interest rate swaps. Even selling options/insurance on financial products at what turned out to be wildly wrong prices is not wrong. The ONLY wrong thing...

Here is a VERY good summary from Stephen King: http://www.independent.co.uk/news/business/comment/stephen-king/stephen-king-the-rest-of-the-world-still-has-a-lot-to-learn-from-the-japanese-1645764.html

You heard of the monolines, right? MBIA, etc.?

CDS are not evil... They're OTC contracts, so you would need to sign an ISDA with your prospective counterparty and post collateral.

Big flow is normally the cause...

Awwwww, that's sweet...

Hey, did you do anything with CHF today? Curious how you handle discontinuities...

Be that as it may, the notionals on these derivatives are a complete red herring. If any of these authors talked about 'market value' or something of that sort, it would make a lot more sense.

I am told that most of the accepted offers in this first reverse auction were from fast money. IMHO, once these guys take profit on a nice short-term spike they've done so well on, the other investors won't be as happy to fill the BoE's bids.

The UK insurers are particularly vulnerable due to a) how active they have been in the pension arena, which is now an absolute disaster; b) just how badly they're hurt by the BoE QE program. Mervyn essentially sacrificed the insurers to save the banks, in hopes that the insurers can be dealt...

Well, when I say 'creeping around' I mean two things... On the one hand, weaker banks here have been effectively defaulting on their hybrids and this process is slowly spreading higher and higher in the capital structure. It's like gangrene: from LT2 not getting called to coupon deferrals on...

He makes a good point. Especially since these sorts of ideas have been creeping arnd in Europe and UK for weeks already.

Look at the 10y Aussie bond futures. As you point out, if you do either futures or options on this bond future, you will need to roll quarterly. Alternatively, you can maybe look at actually trading the cash bond, instead of the future.

Agreed, we're talking about the same thing. I am saying that in the end a weak currency is a good thing, while you're saying that the forward-looking ability to devalue the currency is a good thing.

This fascination with large notionals has to end, 'cause it's plain stupid. People forget about risk, which is a bit more tricky to explain, and keep talking about these humongous notionals that are largely meaningless. It's so damn uneducated.

Don't see what the problem is... This article actually suggests quite an important scenario that warrants a lot of thinking about.