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A Misleading Chart on Credit Default Swaps

How about geared synthetic CDOs? The case of Delphi is perhaps not going to be the norm, especially as a default cascade happens.

The issue at play here is counterparty risk - contracts may exist, but are they able to be fulfilled. Since the Bond Market Association closed down the CDOLibrary.com site in April 2007, how are people really going to assess what risks they have. How can they do sensitivity analyses.

You gave only 1 example to prove why CDS losses may be smaller than feared, but how about if all automakers simultaneously defaulted?

Porsche is a Hedge Fund basically, as is BMW. The risks here are significant. Perhaps spontaneous free market auctions may spring up and people will do what they must, but in many cases certain counterparties could be wiped out completely forcing others to do things they did not expect to have to do.

e.g. Amaranth in August 2006. Made a wrong way bet on Natural Gas and was forced to sell oil and equity in Cinram to cover losses. This drove down petrol prices in Europe at the pump for weeks,