bonddude

Three Card Monte and the Feigned Outrage Against AIG

1. AIG CEO told congress they had to provide almost 100% collateral when CDS contracts were "triggered". - Net effect being probable massive selling bias on all new exchange traded contracts creating more liquidation across all asset classes (excepting Oil and Metals if a major war breaks out).

2. There is a massive amount of other unregulated CDS CDO contracts estimated to be up to $250 Trillion in notional value world wide exerting massive selling pressure on the most liquid contracts- and this should be good for exchanges conducting these trades like selling picks and shovels to the 49ERS.

3. The net effects on the world economy seem to bear out the stag-deflation scenario that Roubini sees. Black Swan?

CDS Clearing Houses Could Magnify the Market Disruptions

The above comment represents the fundamental misunderstanding in popularly advertised thinking about cds derivatives. They are not ALL garbage. Some contracts represent entities with an insurable interest that are actually collateralized. While it is true that the pricing of all of these products is relatively frozen many have actual underlying value. Nevertheless, distinctions and need to be made between the side bet types and collateralized of contracts types by regulators. This will result in a continued and painful selloff in most asset classes until, some have ventured, a 90% contraction in valuation has been effected in the cds markets.

Conclusion, we have not reached the bottom in selling of stocks, gold or oil. The next wave will start when trading in cds contracts begins. JMHO
BG