Treat CDS for what it is: FRAUD

Discussion in 'Economics' started by bl33p, Oct 11, 2008.

  1. bl33p


    Shouldn't the government be prosecuting and confiscating the ill-gotten wealth of all CDS fraudsters?

    If AIG, or other CDS seller, sells CDS for more liabilities than they have assets, isn't this outright fraud? They're saying we're good for this risk, but they're not. They say they can pay if the bond defaults, but they cannot. Isn't this just outright fraud?

    Nothing but a con job. The real moral hazard is letting these conmen keep their ill-gotten gains, so that they can plan for the next "rob the common purse" hit.

    25 to life for all these criminals with complete asset confiscation and hard labor.
  2. Jachyra


  3. That's the problem since these are all OTC agreements. From what I understand, a liability in these transactions becomes an unsecured claim towards your counterparty, nothing else. No exchange guarantees your profit on the transaction. If your counterparty goes bust then you're fucked out of your money.
  4. Why do you say no?

    And why aren't they an illegal insurance contract?
  5. Sort of like Me selling you a insurance contract saying you won't lose any of your money in the stock markets if you paid me a premium of $200,000 a month

    but you do lose your money
    i just declare bankruptcy

    what can you do about it?
    businses is business. You are an idiot to believe I'd still be around to pay you off.
  6. Jachyra


    Because not being able to meet your financial obligations, in and of itself, does not constitute fraud. Although the legal definition for fraud will vary from jurisdiction to jurisdiction, most legal definitions of fraud require "deliberate misrepresentation or concealment" or some degree of "trickery with intent to deceive." So in order to prove fraud, you'd have to prove that at the time they wrote the contracts, that they either made material misrepresentations or that they never had any intent to make good on their obligations. However unfortunate it may be, being a bad businessman and making bad business decisions is not against the law in this country.

    In regards to why they aren't illegal insurance contracts... the answer is simple... in order for something to be illegal you need laws, regulations, and/or statutes that make it illegal... and so far there aren't hardly any laws dealing at all with CDS's... therefore, not illegal.

    Another reason that they have had a hard time deciding whether or not it should be regulated as insurance is because a lot of the people who were on the buy side of the CDS's (the policy holders so to speak), didn't necessarily have an insurable interest, which is a component and requirement of insurance. I can't just go over to the old age home down the street, take out insurance policies on 10 complete strangers, and hope that a couple of them die so that I can get rich. If I want to take out insurance on someone I have to have an "insurable interest"... Now if you are a bondholder and buy a CDS then technically its functioning the same way an insurance policy would, and it might be construed as insurance (although really its just a covered bond), however if I'm not a bondholder and I purchase a CDS then technically I'm not insuring anything... I'm actually just establishing a short position on some corporation's debt.

    Now I'm not saying that the whole situation doesn't make me ill... but what you really should be angry about is that the $65 trillion CDS market is the largest unregulated market ever in the history of the world... so the solution would be to push for laws, regulation, and oversight... and a little transparency wouldn't hurt either.
  7. Mvic


    A lot of these evolutions of financial engineering the last few years are actually quite useful and allow for greater flexibility, investment, and credit generation. They need to be listed on an exchange and regulated by a clearing house (not by the gov). The clearing house will establish margin requirements (rather than the seller establishing his own margin, imagine how that would work in futures, you would have half the traders giving themselves ridiculous margins like 100:1) and they will be realistic because the clearing house does not want to be on the hook for any losses. Has worked great in futures, when I trade the ES I know the CME is behind the trade and that is about as good as it gets as far as counterparty risk is concerned. Hopefully the baby will not be thrown out with the bathwater.
  8. Simple..........the Fed nodded yes to the CDS instruments and floated to the institutional investment and banking world the "blessed" risk management models. CDS instruments were a key part of the over leveraging PLAN......and they were used by many, hook, line, and sinker!

    "Globalist (wealth transfer) Games 2008"........create the problem and then later come in with the solution. What a brilliant way to crush and then come in to takeover the financial grid.
  9. Cutten


    I agree it's a fraud. Then again, so is the entire fractional reserve banking system, and so is deposit insurance.

    If we lock them all up, pretty much the entire financial & political establishment will be in jail. Since turkeys don't vote for Christmas, this is about as likely to happen as a UFO piloted by Elvis Presley crash-landing onto the Loch Ness Monster.
  10. Cutten


    This would indeed be a great plan, but you overlook the fact that government is far too stupid to come up with anything this clever.

    Whenever there are two explanations for something, always prefer the one that relies on a higher level of stupidity and incompetence amongst the protagonists.
    #10     Oct 11, 2008