Credit Default Swaps (CDS) wtf?

Discussion in 'Trading' started by jonbig04, Oct 19, 2008.

  1. I didn't know whether to put this in trading or not, but I couldn't think f where else to put it.

    In doing some more research on CDSs all I can say is WTF? I'm amazed b the fact that you don't have to actually own the debt to buy a CDS on it. That is like me being able to buy life insurance on everybody in Denver, knowing that at least a few of them will croak. One again, wtf?

    On the other side since there is no regulation AT ALL, I can write and sell all kinds of CDS on all kinds of debt....collecting premium after premium. So one day I have to pay up (one of my CDS contracts defaults), I can't afford to pay (i've already spent the premium money on girls and cars) then I just close up shop and the person/company who bought the CDS I wrote is just shit out of luck. Once again wtf?

    Not to mention the fact that you can simply write and trade these things, transferring the risk.

    Am I missing something here? This is wild shit. Any elaboration on these crazy CDS is appreciated. Do any of you write or buy or trade them?

    Am I missing something here
  2. dinoman


    Just wait until you get to the rest of the B.S., stop reading while your health is still good!
  3. karol88


    yup, get-rich-quick scheme...
  4. You are right, this is hardcore capitalism.
    But I think you miss something. Do you do buy your groceries at a dirty cheap ass chineese end of street kind of place or do you go to a reputable business where you expect fresh products and things? Obviously, you get your stuff where you feel safe and that is what banks are doing. They deal with the institutions that they think will honor their deal. That's first. Second, they usually have to put a kind of margin called a colateral, or haircut and some adjustment can be made based on the valuation of the CDS. I got aware of that reading When genius failed.
    Thirdly, this is the kind of mess Buffet was talking about 2-3 years ago... and he was right.
    BTW, I dont trade them.
  5. If someone from an unknown insurance company knocked to your door, you you buy his shit? Same thing.
  6. trader99


    I'm not amazed that you don't have to own the debt to buy CDS or even write
    a CDS and collect premiums. Have you
    ever heard of calls and puts? You can
    buy or sell calls or puts on any stock let's say APPLE or GOOGLE without ever owning a single stock! That's why it's called a DERIVATIVES. Nothing surprising here if you think about it.

    The only problem is the size of OTC
    derivatives like CDS has gotten too
    large. Other than that, nothing too
    surprising or big deal. Just because
    the press and media do NOT understand derivatives they tend to
    blow it out of proportion. Yes, it's a HUGE HUGE HUGE HUGE(!!!!) problem.
    But that's the fundamental design flaws
    of any OTC derivatives - counterparty
    risk. You can't quite hedge that way if
    your counterparty goes bankrupt.

    My main beef with CDS is that the gov't
    shouldn't be involved in bailing our
    any CDS bagholders. It's pure gambling. If you lose then too bad.
    That's how free markets work.
  7. Its true about the reputable insurance company example, but still, there is no guarantee your insurance will be honored.

    Also, since there is no exchange isn't it more difficult to determine exact value ever minute of every day for any given contract?

    Wouldn't CDS arb be a possibility given that there is no exchange?

    I wish I could see a contract, or find info on how to buy and sell them. Not that I would, but I just want to know more...
  8. WOW, just now your finding out about CDS's.....they have been covered specifically since 2002 on the Alex Jones radio program, when they were seen listed as one of the destructive items documented in the 2002 Bilderberg meeting notes (as a means to create additional over leveraging, and the same year they set the plan for $140 dollar a barrel oil....I guess their plans worked out only as pure coincidence.......right?).

    Stick to the mainstream media though.....that way you can remain BEHIND the power curve. :eek:
  9. So I take it you know all about them? Please enlighten us. Do you write, buy or trade them? Can you show us an actual CDS contract including price, stipulations, length of time, along with all the other inevitable nuances that are in typical contracts?