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  • Exchange-Traded Derivatives: Why Stop at CDS? [View article]
    gramps2:

    Good points.

    One positive side to making derivatives exchange traded is that the exchange usually backs the contract performance. If you trade a futures contract (an exchange traded derivative) your actual counterparty is the exchange (read the fine print).

    You don't have any idea who took the other side of your trade, you only see a bid/ask. The exchange is legally a counterparty to both sides. If you default on payment, the exchange is going to be the one looking to collect, not the other party.

    That doesn't fix all the problems, but it does make things more transparent and less likely to blow up in your face. It's always possible to do stupid things and lose all your money as a result. (Think Hunt brothers.) That can't be stopped, but it can be made more unlikely.

    Still, I like your idea of eliminating banks altogether. It has some merit.
    Nov 05 10:00 am |Rating: 0 0
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