KAIMU

A Misleading Chart on Credit Default Swaps

AloHa !!

Any insurance whether car insurance, home insurance or credit default is only as strong as the counterparty backing it. I lived through Hurricane Alicia that hit Galveston in the 1980s. Many had insurance but the insurance companies lobbied the Texas legislature and were allowed to only pay ten cents on the dollar for claims. What good was insurance unless you want to trumpet the 10% protection, but I would rather look at the 90% loss. What was the impetus for the Texas legislature to legalize this theft? The insurance companies threatened to pull out of Texas completely!

Now we look at massive trillions in credit default swaps, which is essentially insurance against a company going into default. What do you think the counterparty will do when faced with huge losses(claims)? DUH-H??

Keep your eye on the insurers. One already filed bankruptcy and another is constantly at the begging bowl ... That is if you don't count the $138bil JP Morgan bailout right before LEH hit BK! What do you think that $138bil was for?

I could care less about the ones that pay out. In the best of Worlds that is supposed to be what they do, but are these times the best of Worlds? Besides what sort of a gain is $66 for assuming such great risk? Its a 6.6% return and when inflation is added it is still a loss!