Who Invented Credit Default Swaps???????????????

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S2007S

BLYTHE MASTERS!!!!!!!!



This is the person who invented this instrument which should have never existed, this is the instrument that has taken down some of the biggest names in HISTORY. I wonder if BLYTHE is creating anymore type of of investment instruments at this time...


The Birth of Credit Default Swaps (CDS)
A young Cambridge graduate by the name of Blythe Masters came up with the idea of “Insurance per Betting” which was quickly put into reality by all the leading banks. The Credit Default Swaps (CDS) were born.
No longer “due diligence” seemed to be necessary, when approving loans. In case of credit default the buyer of the risk paper had to pay. This buyer, like an insurance, is paid regular premiums by the lending bank.
As a result of this madness, 40% of all the recipients of loans are not creditworthy, according to Fitch’s rating agency. A direct result of the “insurance-mentality”. In 2002, in the early days of CDS, it was just 8%.

This whole system worked well for all parties, the banks got rid of the risks, and the “insurer” had a regular income at least for some time, as long, as the economy is not in recession and thus defaults on loans are minimal, as it was the case during the last 15 years.
The CDS became so popular, that by now the unbelievable sum of 65.000.000.000.000 US Dollars has flown into this market, double the value of 2500 leading US companies trading on the US stock market. Madness galore.
With no limitations existing in terms of how high to “insure” those loans, the inflation of these risk papers per loan has become the order of the day.
When US automotive parts company Delphi went into bankruptcy , the bad loans were amounting to 5 billion US Dollars, the CDS sums for these loans, however, amounted to 25 billion. Illegal excess-insurance under normal circumstances. The Swap market, however is ruled by different laws, mainly lawlessness. Excess-insurance has become the order of the day.
 
Blythe has gained a reputation for being opinionated and outspoken—and most of the time she is ‘right.’ This pattern started early on: “I remember that my father didn’t want me to wear slacks to church. Despite my objections, I agreed to wear a skirt. But I wagered a small bet with him that other women would be wearing slacks on Sunday, and if that were the case I would get a dollar for each one I could spot. He took me on, and I not only won the bet, but some money too!” Because of her financial savvy and smart ideas, Blythe has been earning accolades ever since.

Now 36 years old, she started at JP Morgan in the late 80s in the U.K. as an intern. After completing a degree in economics from Trinity College Cambridge, Blythe joined the company full time and “became entranced with derivatives.” In 1994, she moved to the U.S., where she catapulted up the management ranks to become one of the company’s top financial managers. “It’s really only by having the latitude to risk failure that you can excel and exceed people’s expectations,” she advises.

Wall Street is still dominated by men, particularly in areas of influence such as upper management positions. “In the world I operate in, I stand out for being a woman. One’s ability to manage people is 80% of the game. And women can be stronger in some of the ‘softer’ social skills such as communication, emotional intelligence, and sensitivity. Those are important components for a leader to have.” That said, Blythe advises that women need to also have a strong sense of commitment and competitive spirit. “It does take backbone. I’m known for being frank—sometimes too much so,” she admits.

As the mother of a teenage daughter, she, like so many of us, is challenged by trying to navigate between an active home life and a demanding career. Outside the office Blythe carves out time to pursue one of her passions, competing in amateur horse shows, something her whole family gets involved in.

On mentoring:

“I believe that a lot of the onus falls on people like myself, to help get women into top positions—finding a mentor in her field is one of the most valuable things that any young woman can do to advance her career.”

A piece of advice from Blythe: “Take yourself out of your comfort zone. You have to speak up! Women have to be more assertive than men are accustomed to them being.”
 
It was actually a team at JP Morgan, of which Blythe was a key member. That team also stuctured the first securitization by the name of BISTRO. If i remember correctly, it was a bunch of loans taken off JPMs balance sheet.

The CDS itself is a fantastic instrument for a variety of reasons....capital release, unfunded credit exposure for the seller etc....what is insane is that it remained an OTC derivative governed by ISDA documentation.

For the first 2 or 3 years (i may be wrong as to the exact time span), CDS did not even have standard documentation! I think around the end of '99 or so ISDA actually came out with "standardized" language for the docs. As per wall str tradition, the margins on CDS in the first years were absolutely enormous. it eventually became a commoditized product.

Not really sure why none of the "geniuses" never thought of putting CDS on an exchange at the time.
 
Quote from ctheo1:



Not really sure why none of the "geniuses" never thought of putting CDS on an exchange at the time.
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Easier to avoid scrutiny when it is not centrally cleared.

Too much competition in the market?

I think there should be auction for the right to trade CDS, it would relieve pressure to the professional traders, as they would know that only people with serious motive would be looking at their trading patterns.

No wait..

Ok then, it would at least keep kids out of the system.
 
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