Tack

Banning Derivatives and Other Such Foolishness

Tom:

You hit the nail directly on the head.

As long as you can not only buy as many "insurance policies" (CDS) as you wish, but, you can also cause the insured "houses" to be burned down through shorting illiquid debt indices and nefariously spreading negative, scare-inducing rumors through the endless channels of our mass media, then, you have an illicit, rigged system, no different than any other common fraud.


On Nov 16 12:00 PM Tom Armistead wrote:

> You are operting far outside your area of competence.
>
> CDS are by their nature an insurance transaction, and should be regulated
> as such, with a requirment of adequate capital on the part of the
> seller and an insurable interest on the part of the buyer.
>
> You obviously don't have an understanding of insurance or the moral
> hazard created by the lack of insurable interest.

Analyzing the U.S.'s Four Largest Banks

The $136B in reserves is a huge wildcard in the equation. Contrary to making it difficult to make profits, the reserves, themselves, represent the greatest source of potential future earnings.

Assuming the economy continues to improve, at some point it will become apparent that the companies are over-reserved, and when that happens, reserve reversals will have a far greater impact on earnings than other invested capital. This is because when reserves are released, the capital, itself, passes back through the income statement in addition to being freed up for other more risk-based investments.

So, the reserves, themselves, represent potential pure profit, and not just an increase in available capital.