[vosteglog]

I wonder whether anybody will use it.

[monologue]

Originally posted by DanS
I wonder whether anybody will use it. Apparently the CME has had one up and running for over a year, but the banks were boycotting it.

We might need a regulatory push toward the clearinghouse model.

[ffdfriendforurr]

I'm very doubtful that CDS should be allowed to exist at all. They are the equivalent of letting Bob buying Fire Insurance on Joe's house and thats a huge morale hazard. By their nature they incentivate the holder to trigger the financial ruin of a third party. On top of that their nature creates a 'chain-reaction' potential of financial institutes to fail. I think that only the owner of an asset should be allowed to buy insurance on that asset.

[Kayakeenemeds]

On top of that their nature creates a 'chain-reaction' potential of financial institutes to fail

No. The way they were traded does.

[bataovady]

Originally posted by Impaler[WrG]
I'm very doubtful that CDS should be allowed to exist at all. They are the equivalent of letting Bob buying Fire Insurance on Joe's house and thats a huge morale hazard. By their nature they incentivate the holder to trigger the financial ruin of a third party. On top of that their nature creates a 'chain-reaction' potential of financial institutes to fail. I think that only the owner of an asset should be allowed to buy insurance on that asset. Why aren't you giving a good example and cancel any insurance policies you may have? After all, you're being morally hazarded by those.

[freddystone]

Originally posted by Impaler[WrG]


And that is exactly the problem, being able to spread risk encourages excessive risk and opens up the whole system to failure. Say goodbye to joint-stock limited liability companies then.

[Borrinas]

Originally posted by Impaler[WrG]


And that is exactly the problem, being able to spread risk encourages excessive risk and opens up the whole system to failure. Risk spreading is a suckers game, those who create the risks have high information being closest to it, and sell them the risk to parties with lower information, its inherently a swindle. I prescribe to the principle that those that create risks should hold those risks. It is not 'simple-minded' to think that financial transactions which are moral-hazards should be out-lawed or reduced, the entire history of financial regulation consists of curtailing such hazards. You admit that un-regulated CDS is a hazard, I just perceive more hazard then you do. For ****'s sake. Second time I'm saying this. The entire, millenia-old, insurance industry is based on spreading risks. It's not because it's got an unfamiliar name it's inherently the devil's tool.

[patrycjakolekk]

Why aren't you giving a good example and cancel any insurance policies you may have? After all, you're being morally hazarded by those. I think that only the owner of an asset should be allowed to buy insurance on that asset. ummm??

The only Insurance I currently have is the mandatory auto insurance, which covers the liability I would incur in an accident. If I owned a home I would buy insurance on my assets. I would NOT buy insurance on anyone else house, in fact I think thats illegal for us plebs, only AIG can be trusted with that kind of power

[UpperMan]

Originally posted by Impaler[WrG]




ummm??

The only Insurance I currently have is the mandatory auto insurance, which covers the liability I would incur in an accident. If I owned a home I would buy insurance on my assets. I would NOT buy insurance on anyone else house, in fact I think thats illegal for us plebs, only AIG can be trusted with that kind of power Just a side note, but you do realize that with a few exceptions only proper nouns are supposed to be capitalized in English, right? You drive me nuts with your random capitalization scheme.

[SantaClaus]

Originally posted by Impaler[WrG]
being able to spread risk encourages excessive risk and opens up the whole system to failure. That's the beauty of capitalism. One day it will all be over.

[AdSuiteAdobe]

Originally posted by KrazyHorse


Look, we should definitely go back to the time when enterprises were shouldered entirely by small groups of individuals. We all know how productive small businesses are, in general.

Do you think derivatives make businesses more productive?

[HitAttetlyTek]

Originally posted by Kidicious


Do you think derivatives make businesses more productive? I think that they allow businesses to take socially beneficial risks they wouldn't otherwise take.

[Vikonbarius]

Originally posted by KrazyHorse


I think that they allow businesses to take socially beneficial risks they wouldn't otherwise take. I can see the reasoning there. Insurance is beneficial because it encourages credit.

But the derivatives market seems to have gotten out of control because their value is tied to speculative assets. The're like insurance, but they are like stocks too.

[Clarissa]

The problem with current CDS implementation is that speculators are buying multiple (10x more) insurance policies on the same piece of asset. Suppose I can buy 100 insurance policies on someone's car at a fraction of its value, then I will do it and hope that person crashes.

[Maphpseurse]

Originally posted by KrazyHorse
Apparently the CME has had one up and running for over a year, but the banks were boycotting it.

We might need a regulatory push toward the clearinghouse model. Would the CME get any business, even if CDS trades were pushed toward the clearinghouse model?

I can imagine that there are other trades to accomplish what a CDS is accomplishing.