sether

Berkshire Hathaway: Proof That the CDS Market Is Irrational

He may not have answered how these alleged hedge funds are using CDS to drive down the prices of companies who have lots of cash and little debt, but neither have you lent any creedence to your arguement that CDS are harmless, just "insurance contracts used to hedge debt defaults". That is ridiculous. How can 60 trillion in CDS be a hedge against debt default? They are 90% speculation. Do I have to explain to you how oddsmakers work? Heavy action on one side of a bet causes the odds on the other side to go long. If you have a hedge fund taking out insurance on debt they do not own, at 10X the loan principal, you think the 'house' (the collective subjective consciousness of the market) won't notice those CDS rates creeping up and the implied weakness in the root entity? Easy and obvious play from there to short the stock, maybe even collect some on that massive debt insurance (again, on debt you do not own). Hedge funds and major players could manage this with ease. Thanks to the CDS maket being unregulated and opaque, all we can do is wonder if this is going on or not. Seems obvious to me.