By Tara Perkins
Fairfax Financial (FRFHF.PK) has its fingers crossed that U.S. President Barack Obama won’t bow to pressure to curb trading of credit default swaps.
The Toronto-based insurance conglomerate made more than $2 billion during the financial crisis from credit default swaps it had previously bought.
While Fairfax is of the opinion that some new regulations are probably a good thing for the CDS market, the company is hoping that policy makers don’t go too far.
“From our perspective, greater transparency and regulation makes sense in this area as with many others, like short selling, where the lack of transparency fosters manipulation and abuse,” says Fairfax spokesman Paul Rivett. “But it would be unfortunate if the debate led to the elimination of the CDS market as it does provide a deep market for protection for passive investors like ourselves.”
Greek Prime Minister George Papandreou and a host of other European leaders are pressing for a crackdown on financial speculators who play in the CDS market, as Mr. Papandreou says that manipulation of the market is behind Greece’s woes.
Mr. Rivett says “the problem is that a relatively small group of non-transparent speculators have actively abused swaps in legal and illegal collusive ways, and have tainted the market for the majority of those who have entered it for passive protection.”