Category Archives: derivatives

One Easy CDS Fix

I’ve had my share of disagreements with Arnold Kling on the subject of credit default swaps in the past, but he has a good idea today: Regulators and accountants could require firms that are net sellers of credit default swaps … Continue reading

Posted in derivatives | 7 Comments

How the CDS Market is Going to Improve

A Credit Trader has a great post on what he calls "risky annuity risk", an artifact of the CDS market which will go away when all credit default swaps start trading on a fixed coupon. If you like to geek … Continue reading

Posted in derivatives | 2 Comments

Who’s Gaining from the AIG Unwinds?

Tyler Durden has a scary post up, connecting banks’ profitability in January and February to the fact that those were the months when AIG Financial Products was unwinding an enormous number of its contracts en masse. These trades, initiated by … Continue reading

Posted in bailouts, derivatives | 5 Comments

CDS: The No-Natural-Seller Meme

I was on a panel last night with Simon Constable of Dow Jones Newswires, and I’m sure that to our lay audience a peculiar exchange in the middle of the conversation must have sounded a bit like dolphin squeaks. He … Continue reading

Posted in derivatives | 2 Comments

Let the Government Buy Corporate Bonds

What’s the difference between spending hundreds of billions or even trillions of dollars on loans, on the one hand, and loaning out the money directly, on the other? All of the "bad bank" proposals have one thing in common: that … Continue reading

Posted in bonds and loans, derivatives | 1 Comment

John Thain and the CDS Basis Trade

John Thain seems to think that the CDS basis trade was at least partly responsible for Merrill Lynch’s $15 billion loss last quarter. This from the transcript of his interview with Maria Bartiromo: Cash assets completely separated from their derivatives. … Continue reading

Posted in derivatives | 1 Comment

Chart of the Day: The CDS-Bond Basis

Many thanks to JP Morgan, which sent me the data for the above chart, which shows the CDS-bond basis for BBB-rated debt. In English, that means it’s the number you get when you take the CDS spread on BBB-rated credits … Continue reading

Posted in derivatives | 1 Comment

CDS Demonization Watch, Gretchen Morgenson Edition

In the wake of making my proposal below (which I’m entirely serious about, by the way), I’m forced to agree with Gretchen Morgenson about this: Credit-default swaps clearly played a role in this debacle, and it is crucial that they … Continue reading

Posted in derivatives | 1 Comment

How to Resolve the CDS Basis Trade Blowup

Tyler at Zero Hedge has a wonderful post on the CDS basis trade today, which is a must-read for anybody who’s interested in what happened to the CDS basis in the fourth quarter of last year or how Merrill Lynch … Continue reading

Posted in derivatives | 6 Comments

Annals of CDS Demonization, Michael Lewis Edition

Michael Lewis has a grand theory about the CDS market: it was all one big mechanism for paying traders to take a whole bunch of tail risk which would eventually blow up all of Wall Street. You know, I have … Continue reading

Posted in derivatives | 1 Comment