Does Smoky imply a Conspiracy??

Just notes I took while reading GRETCHEN MORGENSON‘s most recent article explaining the current financial mess: A Window in a Smoky Market.

1.  New Accounting rules set to take effect November 15; conspicuously close to the election.  Sure makes it easier to spin the subsequent crash caused by this rule change as “Election” related.

2.  Simple explanation: Sell one risk but buy another.  The CDS buyer assumes the risk of “seller” defaulting rather then underlying investment defaulting.  In practice, paying Goldman Sachs 1% to sell a CDS backed by Bears Stearns rather then holding a bond backed by GM, Exxon or other company.

3.  The first failed CDS that cannot be settled amicable, will roil the markets.

4. If you owned default protected (a basic CDS) and also owned the asset then you had to disclose the details.  If you don’t hold the asset but are merely “making a bet” for or against a companies default, then no disclosure is necessary.  No surprise the market with non-disclosure grew from “133 billion three years earlier” to more the $2 trillion today (31% annual growth).


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