Not Again…. (CDS)
Courtesy of Karl Denninger at The Market Ticker
Gee, didn’t we see this movie a couple of years ago?
Echoing the kind of trades that nearly toppled the American International Group, the increasingly popular insurance against the risk of a Greek default is making it harder for Athens to raise the money it needs to pay its bills, according to traders and money managers.
Uh huh. I think it looked kinda like this:
Now we get to repeat it, because we have refused to force these abusive derivatives out of the market.
Except this time, instead of destroying a few banks, we’re going to do nations, likely destroy the EU, perhaps destroy the Euro, and there’s a non-zero chance we get a war out of it before we’re all done too.
Congratulations CONgress.
I’ve been clearly stating for three years that this crap has to be stopped. That these instruments need to be either banned outright or forced onto regulated exchanges where I can see bid, offer, size and last trade, concentration of risk can be monitored, position limits enforced and we can all know that those who place the bets are good for it – nightly – or they get margined out.
As done today, as done since the "Commodities / Futures Modernization Act", these "contracts" are a scam as there is zero evidence presented that the person who "wrote" the swap is actually able to pay. And as we all know, some of them couldn’t and can’t – AIG anyone? Yet despite what was absolute proof that these contracts were being written fraudulently – that is, without ability to pay – Congress and the Justice Department have done exactly nothing about it.
We can’t "impair" the theft stream, er, I mean "profit stream" of the Goldman’s of the world can we? That would not be fair! We can’t stop them from asset-stripping the entire damn world!
Well CONgress and Mr. President-who-blows-bankers, now you get to deal with what happens when you ignore the "little rumbling" and sit on your ass instead of running – the rumbling was warning of an impending Richter 9 earthquake.
Good luck containing this one folks.
Karl’s Update (10 minutes later)….
More CDS: Refusal To Prove Capital Adequacy
Feb. 25 (Bloomberg) — The biggest credit-default swaps investors oppose targets for clearing trades as regulators attempt to curb risk in the $25 trillion market.
Pacific Investment Management Co., BlueMountain Capital Management LLC and AllianceBernstein LP are among asset managers and hedge funds that won’t agree to specific goals before the Federal Reserve Bank of New York’s March 1 deadline requiring them to outline the industry’s next steps to move swaps through clearinghouses, according to people familiar with the matter who declined to be identified because the talks are private.
NOT CLEARINGHOUSES FOLKS, CENTRAL COUNTERPARTIES.
And further, if these firms don’t like it, tough crap. Declare any contract over which nightly margin and capital supervision is not available TO THE PUBLIC to be void as an unlawful gambling instrument, contrary to national security, and a demonstrably-fraudulent inducement as the writer is refusing to demonstrate ability to pay.
That ought to do it.
I’m tired of this crap. We simply cannot afford to have people writing contracts they can’t cover. That’s how we got the blowup in 2008 and now we’re threatening to destroy sovereign nation credit (see my other Ticker of today) over the same bogus and fraudulent garbage.
Give them 30 days. Either they get moved onto a regulated exchange where we have nightly margining and publication of bid, offer, last trade and size (open interest) or the contracts are declared void due to lack of consideration – that is, due to the firm’s blanket refusal to prove ability to cover the position.
CONgress and President Obama need to stop fellating the banks, brokers and hedge funds and instead bite down – while we still have an economy and financial system left.
