Mbuna

Don't Ban Naked Credit Default Swaps if the Law Can't Be Enforced

Credit Default Swaps were invented in 1997 by a team working for JPMorgan Chase. By entering into CDS, a commercial bank shifted the risk of default to a third-party and this shifted risk did not count against their regulatory capital requirements.

So here we have a multi-trillion dollar market that has grown from an artifice of financial engineering specifically designed to create a loophole in financial regulation which will then allow banks to increase their leverage.. Financial engineering of this sort ultimately serves only one purpose, greed, (while generally playing everyone else for a fool at the same time) and does not benefit the broader economy but only gives the illusion of doing so.. And the proof of that statement has already demonstrated itself, in spades. So here we are with huge bloated financial corporations that created tremendous fake earnings for years and now we finally see the financial sector, the emperor of the US economy with 40% of GDP, and its new clothes. It was and is an illusion and the desire to sustain this kind of financial sector will come to naught.


My view of the entire CDS market is that it is essentially nothing more than financial crack. The entire financial sector is completely addicted to something created out thin air to evade regulatory capital requirements, and they all think it is good for the economy!? They are all a bunch of ADDICTS hooked on this financial crack. Everyone I have read that defends CDS strikes me as an addict. And yes Geithner is hooked on it too. From where I stand, the Fed, the Treasury and Wall St are somehow hoping to turn the US economy back into some giant gambling casino when in fact they are addicted to an illusion that will never bear fruit. The entire CDS market should just be shut down, period.
Start from a position of sanity rather than addiction- the financial sector exists to facilitate the lending of capital for the broader economy. The financial sector itself IS NOT THE ECONOMY. You will never ever see the financial sector sustain 40% of GDP in reality because the broader economy cannot support it. It was a house of cards that was never real. What really has to happen is that the entire sector needs a very serious downsizing.