Fitz919

The $60 Trillion Nightmare of Credit Default Swaps

When Hank Paulson starts buying up those pesky mortgage backed securities, the credit default swaps which here-to-fore had been "backing them up", ie. insuring them, will be voided. That means no more premiums will need to be paid. This bailout is even better than I thought. Credit Default Swaps, and the premiums, and those pesky securities, all gone in one fell swoop. It's definately time to go long the financials again.

The $60 Trillion Nightmare of Credit Default Swaps

Some of the Credit Default Swaps are entirely innocent, and are the functioning guts and feathers of ETFs. But the majority are insurance policies which cannot possibly payoff, because the insurer doesn't have the money. Those CDSs are a fantasy, and every one of them must be cancelled as soon as possible. Those who take risks must be accountable for their own risks. The derivatives market is now over 450 Trillion Dollars, and the CDS market is only one piece of it. I can only assume that the bulk of the entire derivatives market must also be cancelled as soon as possible too.

I'm a day trader, and if you totalled up the sum of all of my trades this year it would be roughly 4 million dollars. But I never had more than about 110 thousand dollars worth of equity. But in the world of high finance I could probably borrow 120 million dollars. A figure 30 times a meaningless number. That's why I call the bulk of CDSs a fantasy.

Why can't an intelligent banker recognize that the insurance he's buying is worthless. That's a question which needs to be asked....over and over.