[squicscor]

No.

[hwood]

Because market crashes have causes other than a dramatic shift in risk tolerances due to mass psychology?

[InvertPrete]

It's not that surprising that they could raise that much capital when they fix the game via Uncle Sugar.

Do you mind producing some proof of this, or is it simply the same old conspiracy claptrap?

[BritneySpearsFun@@@]

The way the AIG Lehman default swaps were handled by the government to pay them 100% is probably the best example of Goldman exerting their political influence for profit. Why didn't the government negotiate when there was so much latitude for the government to do so. Counter-party failure = 0% payout.

No, counterparty failure = whatever payout the bankruptcy judge decides. And those payments are COLLATERAL. When the contracts expire without the underlying defaulting AIG gets the money back. AIG was driven under by a classic liquidity failure disguised in new terms. Its liabilities became temporarily overvalued, which caused its counterparties to request additional collateral. The government stepped in to provide AIG with liquidity to cover its obligations, and in general provided as much liquidity as the market could handle for the next 6 months or so.

[halyshitzob]

It's not that surprising that they could raise that much capital when they fix the game via Uncle Sugar.

Do you mind producing some proof of this, or is it simply the same old conspiracy claptrap? There's no conspiracy in the obvious: Former employees of Goldman have some of the highest posts in the government where money and financial regulation are concerned. They come from a background where Goldman has given them so much and they are compromised in their vision of what makes the world go round: Goldman and finance in general.

I could do a list of specific actions (and I already posted the AIG CDS debacle) that show how much the interests of Goldman are served by the government.

I am not in denial that Goldman is also the best at what they do (and now that one of their main competitors passed away, they'll be even better) . The reason they aren't as evil as Citi is that they are at least more than competent managers of their client's money. Evil incompetence is far worse than evil competence.

[pokerbonuscod]

To add to the discussion: I do believe that financial innovations often lead to greater instability in the short term. People get excited about the possibilities and are blind to the flaws of the new structures, models etc. But the same is true about innovations in the non-financial sector as well. Does anybody remember the tech bubble? Does the admitted unpleasantness of market crashes outweigh the good being done by these innovations? No.

Stock market crashes couldn't exist without joint-stock companies. But I'm not willing to give up the latter to get rid of the former. And any system of regulations which succeeded in preventing bubbles and crashes would also stifle these innovations.

[Tyncneiff]

It's unprecedented that the CDS obligations would not be negotiated at all and paid at 100% when over subscribed to the underlying value of the bonds in question.

I have no idea what you're trying to say here. The underlying has nothing to do with this. The payouts are COLLATERAL ON CONTRACTS. They are not free money to GS & co. The money COMES BACK TO AIG.

[Biashpainabix]

Innovation for its own sake isn't worth protecting. The fact that nothing has come in preventing the potential fraud, abuse, and pitfalls of Credit Default Swaps is an indication that the argument that innovation will be stifled is firmly unfounded in any fact.

at the thought that CDS are more prone to fraud and abuse than are joint stock companies.

[broksaksaak]

Innovation for its own sake isn't worth protecting. The fact that nothing has come in preventing the potential fraud, abuse, and pitfalls of Credit Default Swaps is an indication that the argument that innovation will be stifled is firmly unfounded in any fact.

at the thought that CDS are more prone to fraud and abuse than are joint stock companies.

at your strawman.

[buIf6yoW]

I really don't miss the days where all I did was swim through CDS deals.

[Peter Hill]

Asher caused the crisis.

[alicewong]

Go ahead and regulate them. More work for me to subvert the regulations.

[M_Marked]

Go ahead and regulate them. More work for me to subvert the regulations.

You'll fit right in at Goldman.

You're essentially saying, nothing should be done because the law will be broken anyway, except that tax payers bear the costs of the law breaking, either in prevention or restitution. Given the SEC's paltry budget and compromised abilities (I don't even want to use that word with them), why not at least TRY and prevent some stuff before it happens rather than after at greater cost?

[EtellaObtaite]

or that one need not own the underlying instrument to enter into a CDS contract.

I know that both KH and myself have explained the reasoning for this on several occasions. There's reasons for it, no doubt, I just question the value of those reasons based on the exploitable nature of it.

[CoenceLomneedtrue]

You're essentially saying, nothing should be done because the law will be broken anyway

No, I'm saying that regulating them is just a bad idea. If given the opportunity I'll be happy to reverse the bad decision of the regulators via clever engineering.

[averkif]

How is it exploitable?

1. Customer/Client withholds payment/withdraws capital to increase the likelihood of default and purchases CDS. Requiring that the purchaser of a CDS have some vested interest by being a bondholder would prevent this to some degree, especially if there was a limit as to the amount of CDS exposure you could have relative to the underlying bondholdings
2. Using CDS basis spread as a key metric of default likelihood encourages increased spread in basis, which triggers capital to leave which impairs the ability of the company to do business and increases the likelihood of default.

1. can be done and 2. can't be done.

[bredkumanfirst]

Customer/Client withholds payment/withdraws capital to increase the likelihood of default and purchases CDS.

This is precisely what I referred to. So far, I know of one instance of this. Any more instances?

If there truly has been only 1 or two cases of this, then shouldn't regulatory oversight be focused on areas where there are more problems?



Using CDS basis spread as a key metric of default likelihood encourages increased spread in basis, which triggers capital to leave which impairs the ability of the company to do business and increases the likelihood of default.

This simply doesn't make any sense.