- DTCC Posts 6-Month Market Activity Snapshot on CDS Market
- Default in Today’s Advanced Economies: Unnecessary, Undesirable, and Unlikely
- The Impact of Banks’ Cumulative Reserve Position on Federal Funds Rate Behavior
- A Wolf in Sheep’s Clothing
- TBA Trading and Liquidity in the Agency MBS Market
- Impact of High and Growing Government Debt on Economic Growth
- Financial Amplification of Foreign Exchange Risk Premia
- The Central-Bank Balance Sheet as an Instrument of Monetary Policy
- Exorbitant Privilege and Exorbitant Duty
- The Information Value of the Stress Test and Bank Opacity
- Price of Risk—Recent Evidence from Large Financials
- Shadow Banking
- Summer Doldrums
- Credit Default Swaps: What Are the Social Benefits and Costs?
- The International Role of the Euro
- Chronicle of Currency Collapses: Re-Examining the Effects on Output
- The Paradox of Toil
- Links
- What the Fed Did and Why
- Markets and Government Before, During and After the 2007-20xx Crisis
- Detecting and Interpreting Financial Stress in the Euro Area
- Are We Building the Foundations for the Next Crisis Already? The Case of Central Clearing
- Links
- Links
- OIS Discounting
- Multimarket Trading and the Cost of Debt: Evidence from Global Bonds
- Is Economics Coursework, or Majoring in Economics, Associated with Different Civic Behaviors?
- China’s High Saving Rate: Myth and Reality
- Oil Spill
- Eurozone €440 Bln SPV Aid Fund
- ECB Financial Accounts and ECB Financial Strength
- Central Bank Swap Networks
- DTCC Posts CDS Market Activity Snapshot
- ECB: Financial Stability Review (June 2010)
- Global CDO Issuance by Transaction Structure
- Links
- TBAC Minutes: Sovereign CDS and Swap Spreads
- Goldman Sachs Underwriting Market Shares in Subprime RMBS and CDOs
- Abacus for Dummies
- The World’s Safest and Riskiest Sovereign Debt (Update)
- Increased Sovereign Risk Behind Negative Swap Spreads
- Haircuts
- Markets, Religion, Community Size, and the Evolution of Fairness and Punishment
- Beyond the Dollar: Rethinking the International Monetary System
- Links
- Amazing Discovery
- ABCP Outstanding: Still Crashing
- Greek Government Bond Market
- Links
- Sterling Today
contact: jck [at] aleablog [dot] com
It’s about time.
It was obvious that there was a problem when the notional value of default swaps exceeded the referenced security.
In the insurance business, they have had centuries to figure out that it is important to have an insurable interest to prevent abuses. For example, buying life insurance on someone else, or fire insurance on someone else’s house.
Just in case no one has a subscription to WSJ, here is a synopsis at http://blogs.reuters.com/felix-salmon/2009/06/11/amhersts-cds-coup/
This is the hilarious slap-in-the-face that I have been waiting for (and from a small shop out of Texas! who woulda thunk!)
Hiring Laurie Goodman was a clever move, former UBS and author of my favorite books on everything CDOs and Subprime mortgages.
Nominate Amherst for the investing Oscar “For most creative use of a cleanup call.” Way cool, and makes the pricing of CDS on securities with cleanup calls much more complex.
JPM and RBS traders were unaware of cleanup call provisions? Wow.
ROFLOL
The big boys didn’t read the prospectus and got taken by someone who did. That’s all there is to it. They have no excuses and no ground for complaints, imho.
The big boys are mostly pissed that they didn’t think of it themselves, right? Don’t they get the same 10c/$ that they expected from buying insurance at 90c/$. They missed a creative exit strategy and someone profited in a big way off of them, and ‘it wasn’t nice’.
Am I missing some part of the mechanism that hurt the banks more than they first expected?