MetaFilter posts tagged with creditdefaultswaps

Hey Brother Can You Spare Some Change I Can Believe In?

saulgoodman — Wed, 13 May 2009 13:16:54 -0800

President Obama has announced he will seek broad new authority to regulate the financial derivatives markets. As has been discussed many times previously here on the blue, the massive unregulated financial derivatives markets (estimated to be in excess of hundreds of trillions of dollars in overall scale) have been one of the major contributing and complicating factors in the current global financial crisis. Warren Buffet once famously described derivatives as "Weapons of Financial Mass Destruction." And more recently, even stalwart anti-regulation crusader Allen Greenspan has had a change of heart, conceding that he was mistaken to oppose tighter regulation of the derivatives markets. So the real question now becomes: With an emerging consensus and executive support on the side of these reforms, will congress finally be able to get the job done?

Another potentially huge settlement day for CDS contracts ...

Mutant — Fri, 10 Oct 2008 02:32:15 -0800

Credit Default Swaps (CDS) are derivative instruments providing the purchaser with protection against default on an underlying financial asset. When Fannie Mae and Freddie Mac technically defaulted on September 7th there was much speculation that the CDS market would collapse as a result of protection being invoked on $1.4 trillion dollars worth of debt. On October 6th these derivative contracts settled, and the CDS market didn't collapse with recovery rates of 92% being observed. Today CDS contracts protecting against the default of Lehman Brothers settle. The problem? Because industry lacks a central clearinghouse for these derivatives, nobody is really sure how many CDS contracts were written either by Lehman or by other banks providing protection against a Lehman default. Next on the list are CDS' covering Washington Mutual, which are due to settle October 23rd.

Meanwhile efforts to create a clearing house continue, as some folks speculate that the settlement of Credit Default Swaps is a major reason why banks are hoarding cash.

CDSs and you.

clevershark — Fri, 19 Sep 2008 10:55:57 -0800

How AIG fell apart is a good article giving an overview of Credit Default Swaps (CDSs) and the role they played in AIG's struggle. CDS issues are a crisis that quite a few saw coming just a few months ago and one that was discussed here then, although AIG was thought be a special "safe" case among CDS issuers. Indeed it now seems that AIG's particular problem was that it had failed to hedge the CDSs they issued with CDSs acquired from other institutions, presumably on the premise that they were insuring assets too safe to fail.