Are CDS an assignable contract?

If they are and say private investors in the PPI Investment Fund purchase toxic assets that have a CDS attached then conceivably a private investor can gain a windfall profit. Assuming Treasury allows that but something tells me they would allow it.

Can this be?


This is The Economic Populist Admin. I am putting the answer to this question in the post so it goes out into the RSS feeds.

The answer to the question of are Credit default swaps are assignable is yes.

Financial Sense, Frank Barbera:

Put another way, the CDS market currently has a notional value that is greater than the combined value of the US Equity Market ($21.50 Trillion), Government Bond Market ($.4 Trillion) and Mortgage market ($7.1 Trillion) combined. Within the CDS Market, commercial banks are among the major players, with the top 25 banks holding more than $13 Trillion in Credit Default Swaps. Among the top four banks, JP Morgan Chase ($7.80 Trillion), Citibank ($3 Trillion), Bank of America ($3 Trillion) and Wachovia ($1.6 Trillion).

To better understand Credit Default Swaps (CDS), assume that Party 1 bought credit default insurance from Party 2 to protect himself from a default on a bond, or as a bet on a company's health. In the case of actual default, Party 2 would pay the bonds full value to Party 1. However, and here is where things go seriously awry, the CDS market is not regulated, and Party 2 often has the right to assign the insurance contract to yet another party, Party 3. Party 3 can then assign the contract to Party 4, and Party 4 may assign it further to Party 5. In this instance, in the case of an actual default, Party 1 may have to find and track down the ultimate party responsible, who may or may not be in a position to actually pay the bond's value. Are you getting the idea that this is a not a kosher market?

Interesting his post is from July, 2008, before the financial meltdown happened. Read the whole post, about half way down where he discusses the problems with derivatives.

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