Credit Default Swaps

[SportsDino]

Credit Default Swaps Video - CBSNews.com

These things give me the heebie jeebies...

One major factor to the current recession.... don't just give out a bad mortgage, double down your bets at every step along the way (or quintiple down)!

The falling apart of this CDS market will choke the economy for a while still in my opinion.

[Marc Vaughan]

This is one of the major reasons why I don't think the major goverments pumping money in presently won't be inflationary - for years now the financial institutions have effectively fakes their income/balances through complex swapping of money back and forth between them, making them all 'look good' without having any real substance.

This has allowed them to inflate the valuation of many other aspects of the economy (stocks etc.) by purchasing far beyond their realistic backing. Hence their having to unwind their investments to actually get this money back is causing deflation in various areas - most visibly the stock exchanges.

I view it a little like someone who juggles huge amounts of credit cards, convincing each that he has a decent income because he uses one to pay off another and thus keep extending his limits ...

While it works it seems impressive and can give that person a decent standard of living ... however eventually its going to catch up with you and at that point you're likely to go bust (as the banks have found ).

[BishopMVP]

Also indicates why recapitalizing the banks won't inject liquidity into the credit market. The poorly managed banks still don't know if they have money, and the well-managed banks are just using it to acquire those poorly-run banks.

[CU Tiger]

Originally Posted by Marc Vaughan

This is one of the major reasons why I don't think the major goverments pumping money in presently won't be inflationary - for years now the financial institutions have effectively fakes their income/balances through complex swapping of money back and forth between them, making them all 'look good' without having any real substance.

This has allowed them to inflate the valuation of many other aspects of the economy (stocks etc.) by purchasing far beyond their realistic backing. Hence their having to unwind their investments to actually get this money back is causing deflation in various areas - most visibly the stock exchanges.

I view it a little like someone who juggles huge amounts of credit cards, convincing each that he has a decent income because he uses one to pay off another and thus keep extending his limits ...

While it works it seems impressive and can give that person a decent standard of living ... however eventually its going to catch up with you and at that point you're likely to go bust (as the banks have found ).

or you could blame mark to market laws which require a bank holding a 250,000 loan that has never been late and may even be years ahead of its amoritization schedule to devalue it to say 65,000 because of a home owners credit score 3 years ago when the loan was originated.....Dumb S/O law unintended consequence. ENRON screwed us as predicted we just didnt know when.



I'm not dumb enough to think that is fully to blame but maybe more than some want to realize, and damn near 100% to blame for Wachovia