credit default swaps
The biggest threat to our financial system are the CDS's. As I understand these CDS's they represent insurance to the lender against the default of the borrower. There is no problem with this simple insurance transaction between two parties. The problem is third, forth fith etc. party transactions. Individual organizatios bought and sold CDS's without owning the underllying instiments leaving the phantom insurers at risk. I would refuse to pay the insurance to those investers that did not own the original loan. They would lose there original investment which would be a small percentage of the aount to cover the insurance..
Comments (1)
I have been ranting and raving against CDS, at least when not supported by an insurable interest, for at least six months.
The idea of refusing to pay those who did not own the underlying debt makes some sense: such contracts are for an illegal purpose (trashing the credit ratings of the vicimized company) and should be unenforceable as a matter of public policy.
Jim Cramer was on the subject tonight - maybe he will popularize it.
Posted by TomA47 | October 14, 2008 6:43 PM