Why Buffett Called Credit Swaps "WMDs" [Housing Tracker] 2 comments
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Fannie, Freddie Fallout
Insurers face CDS loss on Fannie, Freddie “The default of up to $500bn of Fannie Mae and Freddie Mac credit derivatives contracts triggered by the US government’s takeover of the mortgage groups could result in billions of dollars of losses for insurance companies and banks who offered credit insurance in recent months. The potential losses, as well as uncertainty about exactly how the derivatives contracts will be settled and unwound, are putting strains on the unregulated $62,000bn credit derivatives market, which has been a target of regulators worried about the hidden risks it could hold for the financial system. The exact number of credit default swaps outstanding on Fannie and Freddie are not known.” (Financial Times, Sept. 11)
Fannie and Freddie's New Derivatives Cliffhanger. “Roughly $1.4 trillion in outstanding credit-default swaps, a type of derivative contract, must be settled…The federal government's decision to take over Fannie and Freddie could turn out either to demonstrate that the auction system to unwind such contracts works or to set loose financial Armageddon. In a worst-case scenario, the default swaps could lead to monumental writedowns and overall financial gridlock as companies bicker over prices and unpaid obligations.” (BusinessWeek, Sept. 9)
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In this 62 Trillions unregulated market, where one bank/ hedge failure will let to many other bank scrambling to look up who their counter parties are, potentially trillions of CDS become worthless, why now one (including our goverment) are discussing this problem.
WSJ reported that there are 181 hedge funds, FRE, Bears Stearn and Lehman all went burst ...
Where is the RTC for CDS ...