Quote from Martinghoul:
Fine, against my better judgement I will...
Firstly, may I suggest that you start with this, which is a very good response to the 'kill CDS' crowd:
http://www.acredittrader.com/?p=117
I'm not surprised you threw out that light read as 'proof positive' for CDS.
That article is a trite point-counterpoint to Soros' critique that admits no contextual understanding of systemic downside risk caused by proliferated derivative shorts. Leverage magnifies losses. Leverage (fractional lending) compounded by more leverage (derivative shorts) spells doom for sellers when the market farts. Your blogger friend desperately clings to a myopic definition of risk and "Free markets" when its used sparingly in the examination of
a contract. Or
a company. Not the broader system in total. Which is
the problem. Something you missed, evidently.
Quote from Martinghoul:
Secondly, in the current regulatory framework, the govt CANNOT just go out there and nullify CDS. Suggesting such a solution is plain idiotic. They can, theoretically, ban the contracts going forward, but even that would require some legal effort.
Idiotic? No, whats idiotic is the CDS-crowd getting Trillions in public bailouts because they've got no collateral (or cash) to make good on the mountains of derivatives they wrote.
Thats idiotic.
The Government has total regulatory authority to license or ban any instrument deemed beneficial - or harmful - to the financial system.
CDS is leverage. When Banks and mono-lines gear themselves 50 to 1 on debt and toxic paper, a mere rustling of the leaves is enough to bury a few unhedged insurers. Then, bring down more after that!!
Its a house of cards. Thats what you don't get. Mortgages were derivatized in CDO's. Corporate Debt was derivatized in CDS. Sovereign debt was derivatized in CBO's . For every non-performing asset, writers take a hit on
many multiples of the underlying. Even when hedged, this creates a cascading failure within the system.
Which is why you chicken-necked women run around shouting "systemic risk" and "apocalyptic meltdown" without even having fathomed where that risk is borne.
Quote from Martinghoul:
Thirdly, people like you who keep repeating the famous Warren Buffett's quote about derivatives being 'financial weapons of mass destruction' should give it a pause, given that ol' Warren hasn't exactly been practicing what he preaches (10y S&P puts, anyone?).
Buffet and Soros are One-Worlder 'tards, which doesn't happen to make them wrong, in this instance.
You know what 'insurable interest' means? I suggest you look it up.
Insurance companies don't sell policies to anyone besides the title holder because they'd quickly go bankrupt from rampant short speculation.
CDS should be regulated 1-to-1 against the underlying. That's it. There's no need to enrich speculative protection buyers off the backs of the Taxpayer because the original seller never had a fraction of the required capital to cover! But I guess you consider private looting of the Treasury a shining example of "free markets".
How about all the douche-bag Mono-lines and Banks go tits up, and you protection buyers get stuck holding the bag? Thats justice. Not only are you betting against America, but hastening its demise by compounding the damage of every bankruptcy.
Quote from Martinghoul:
Fourthly, to address your question about subprime mtges, I invite you to read a macroeconomics textbook, a speech by Mishkin about the effects of housing on the economy and to look at the US GDP. I am sure that things may (or may not) clarify themselves.
Invite me to read an macro book? Lol.
I invite YOU to go back and relearn what a credit default swap is and the excessive risk it imbues to the writer, and the entire financial system when compounded atop itself. You're talking crap, Martin.
