he couldn't be any worse of a human being. between the gun control and his run on the financial system with his reckless short hedge fund driven comments, he's by far the biggest criminal in the history of elected officials and should be sent to ADX Florence for the rest of his horrific life.
You nailed it. How can CDS leverage debt 10 times its outstanding value??? I've got a bond, someone else insures it. Now someone just puts up the premium for insurance on a bond they don't own. And someone takes the otherside, insures it, and bam, 4x or 10x outstanding. Its basically an option play. Selling massive put options as insurance against a blackswan. Its pure Taleb. The funny thing is, outstanding counterparty risk for derivitive writers - CDS writers ("the insurers") amongst others - is something like several HUNDRED Trillion Dollars. This is why its a joke. Only a small fraction of that outstanding debt can be paid off because there simply isn't enough money held by the insurers to honor their exposure!!! Its like I've got a net worth of 10,000 dollars and I insure someone for 5 Milllion dollars. Whoops. But no worries. Because all the CDS writers are FED member banks and Investment Bank spawn. If they need a bailout to prevent a domino collapse of the system, they get one. Seems Wallstreet securitized a worthless product that would never mature in-the-money, by virtue of their control over the Money Supply. Who pays when the Moral Hazard goes astray? oh man. my head hurts.
From what I understand, Wallstreet made CDSs speculative vehicles. So they allowed any party to insure (write risk) or buy (insurance). Speculators took over the market so that at anyone time, theres between 4 to 10 times notional outstanding of the underlying actual debt. You're right. It should be one-for-one. In order to insure, a person must own the underlying bond. Same with CDO's. In order to sell, a Bank or lender must hold that paper for a minimum of 5 years before they can resell. Very simple, simple simple stuff that anyone with a half a brain could understand. Yet, here we are ? Begs complicity at every level of the Food Chain. Oh yea, and conspiracies dont exist!
it's worse than that since CDSs for crap paper were bundled and reinsured by Moody's (or whoever) and sold (short) again as AAA gold is gapping for a reason.. pick one
56,000 sep. call options on GLD (100 STRIKE) were traded friday against an open interest of 7000 stop doing that Goldman... you're scaring the children
Meanwhile, the dollar and US treasuries both plummeted on Friday, handing a nice profit to anyone following the advice in my first post. It's certainly affecting the market.
really good point. i was thinking this yesterday. they are basically really big mbi or abk. and there cdo's are priced for a company with a rating 5 levels below AAA. i did see credit defalt swaps for the USA debt was up 5 basis points at one time yesteday. my question is if your insuring against the USA default who is strong enough to take the other side.