Hear Comes the Hearings - Investigations Start on Credit Default Swaps

U.S., Cuomo Open Credit Default Swap Investigation:

The U.S. government and New York Attorney General Andrew Cuomo opened a joint investigation into the $34.8 trillion credit-default swap market, the top federal prosecutor in New York said

Might be a scapegoat witch hunt though for they are targeting short sellers.

New York Times:

Mr. Cuomo and Mr. Garcia are investigating whether investors drove up the price of swaps in transactions that were reported to data providers but never actually completed, according to people briefed on the investigation. If so, that would have helped anybody who sold short financial shares. In a short-sale, investors sell stocks they do not own in the hopes of buying them back later at a lower price.

To identify whether there was any manipulation, Mr. Cuomo’s office has issued subpoenas seeking data from various parts of the industry, including stock exchanges, investment firms and three companies involved in processing trades in swaps and stocks, according to people briefed on the inquiry.

Those firms are: the Depository Trust Clearing Corporation, which serves as the clearing agent for most financial transactions including swaps and stocks; Markit, which provides swaps data to Wall Street banks and investors; and Bloomberg, the financial data company whose electronic system is used by traders to track markets and communicate with one another

So, if this will lead to more regulation and do something structurally about this massive unregulated market....initial reports don't seem to imply that.

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I still don't understand

Why selling what you do not own isn't treating like any other form of selling what you do not own- as fraud.

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they do "own" it

what they own is the derivative, just like insurance companies own the insurance policy.

shorts are a little more complex, but when they say "naked" shorts, which are supposedly illegal but not enforced, that's when the investor doesn't own the actual underlying stock, which is called a covered call.

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Lehman CDSes

Appears there is another settlement on Lehman CDSes:

Seeking Alpha

Today is the last day for money to change hands as a result of default swaps being triggered related to the Lehman filing, and it looks like the market handled it in a surprisingly orderly fashion. Collateral was adjusted and traded on a regular basis from the bankruptcy filing date forward, and, as a result, while a great deal of money still changed hands -- somewhere between $6- and $60-billion, depending on who you ask -- it currently doesn't look like any counterparty was made insolvent by its CDS-writing actions.

Does that make credit default swaps a non-issue? Far from it. But in my never-ending search for disconfirming data, the Lehman non-event -- so far, anyway -- is a useful data point to keep in mind the next time a default event triggers an unwinding

The market was all abuzz about these CDS settlements, so much they tanked the market. It's not know how bad these credit default swaps are and even when nothing happens the market reacts it seems.

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$600 Trillion, yes Trillion, derivatives market

in September the total notional amount of outstanding derivatives in all categories rose 15% to a mindboggling $596 TRILLION as of December 2007

This is astoundingly large derivatives market.

This pool of so far silent derivatives without a major bust can come to life any day with the failure of a multinational financial firm

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Especially since the GWP

Is only $65 trillion.
This market is 10x the real world wealth being created.

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GDP

u mean right?

As far as the earlier comment on whether this new wealth inequality is fictional money....eh, does it matter when they have all of the power? But, very interesting question and I honestly don't know the answer to it.

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Nope, Gross World Production

US GDP is only $13 trillion.

Gross World Production is $65 trillion.

Thus, if the derivatives are in the $500-$700 trillion range, we're talking about a LOT of fake money out there that isn't based on anything at all.

"As far as the earlier comment on whether this new wealth inequality is fictional money....eh, does it matter when they have all of the power? But, very interesting question and I honestly don't know the answer to it."

If their power is based on a lie, and it becomes widely known that their power is based on a lie, then yes, it will matter when the guillotines come out.

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The Google is your friend

Nominal GDP country by country comparison.

World, ~54 trillion

US ~13.8 trillion

Most of these figures you can find by a quick search in Google, so no reason to guess.

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That was my source for the US

The BIS number reported here earlier was my source for World.

I wonder if there's some too small to fit in that chart that would account for BIS being different than that chart?

At any rate, what bugs me about this is that our debt seems to completely dwarf that... by more than 10:1.

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I could have sworn our GDP

Was only $13 trillion

I'll make sure the rest of this post gets threaded correctly.

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