by mannfm11 » Fri Apr 09, 2010 2:36 am
The default swap is an interest differential and a bet. It is a futures contract or at least priced that way. Should the spread go to 20%, the person who sold the contract at 4% would likely have to post 16% collateral. It is also a summation contract in that 4.35% is only the first year premium of a 5 year payout. Thus, someone might be making a bet, but then again, someone else might want the interest spread on Greek debt without actually buying the debt itself. CDS's allow hedge funds to leverage their capital. Thus a fund with $1 billion might sell $5 billion in swaps on a variety of debt, including Greece. That way they take in 20% if there are no defaults and can have a portfolio. This is the real contagion, what happens when the next 5000 mini AIG's go up in smoke?
There are either plenty of liars or pure idiots out there now. The US banking system, at least the big banks, the too big to fail banks are broke and I mean broker than they would ever earn themselves out of, mainly because the money doesn't exist, save them being able to loot their own customers. All the money in existance is owed either by the Fed or one of its banks. All this money is owed back to the banks, but not by the customers to which it is owed. Anything topples that line to any significant extent, they roll over. Seeing as the big US banks are again choking the bankrupt pension funds into crappy stock investments a little at a time and are driving stock prices up artificially by manipulating the market, a downturn this time would Japanize them permanently. They are poised to pass the bag of barnyard fertilizer to the customer, but the earthquake might just hit first, at which time the bag would be left with those that held the CDO's last time before they could pass them. I wonder how may puts Goldman has bought? I bet not many.
The default swap is an interest differential and a bet. It is a futures contract or at least priced that way. Should the spread go to 20%, the person who sold the contract at 4% would likely have to post 16% collateral. It is also a summation contract in that 4.35% is only the first year premium of a 5 year payout. Thus, someone might be making a bet, but then again, someone else might want the interest spread on Greek debt without actually buying the debt itself. CDS's allow hedge funds to leverage their capital. Thus a fund with $1 billion might sell $5 billion in swaps on a variety of debt, including Greece. That way they take in 20% if there are no defaults and can have a portfolio. This is the real contagion, what happens when the next 5000 mini AIG's go up in smoke?
There are either plenty of liars or pure idiots out there now. The US banking system, at least the big banks, the too big to fail banks are broke and I mean broker than they would ever earn themselves out of, mainly because the money doesn't exist, save them being able to loot their own customers. All the money in existance is owed either by the Fed or one of its banks. All this money is owed back to the banks, but not by the customers to which it is owed. Anything topples that line to any significant extent, they roll over. Seeing as the big US banks are again choking the bankrupt pension funds into crappy stock investments a little at a time and are driving stock prices up artificially by manipulating the market, a downturn this time would Japanize them permanently. They are poised to pass the bag of barnyard fertilizer to the customer, but the earthquake might just hit first, at which time the bag would be left with those that held the CDO's last time before they could pass them. I wonder how may puts Goldman has bought? I bet not many.