Posts tagged "cds"

February 25 2010

From the New York Times...

Bets by some of the same banks that helped Greece shroud its mounting debts may actually now be pushing the nation closer to the brink of financial ruin.

Further to the post on this blog about the anti-selected use of Credit Default Swaps by Goldman Sachs, the New York Times now reports the latest destructive use of these instruments in betting that Greece will actually default on its debt. In doing so, the escalating price of CDS on Greek sovereign debt increases the likelyhood that this will indeed happen.

This story contains more than a shade of Warren Buffet's famous aphorism about derivatives being "Weapons of financial mass destruction." Except that CDS are not real derivatives. More like dodgy insurance products with an unreliable pricing model.

Fortunately, the US Fed and the Senate Banking Committee appear to have finally awoken to the risk

"We have a situation in which major financial institutions are amplifying a public crisis for what would appear to be for private gain," Dodd said.

Let's hope they've got the balls to actually do something to Goldman this time, rather than rolling over and playing dead as in the AIG debacle.

February 07 2010

If AIG Financial Products had only employed the same simple technique as the rest of their storied organization for evaluating the quality of the risks they were taking on, their implosion could surely have been avoided.