Time to Unravel the Knot of Credit-Default Swaps...[CDS's are] the elephant in the room, the $30 trillion market that people do not want to talk about.
Great explanation, and the first suggestion of a way out that makes sense to me, courtesy of math professor Sylvain R. Raynes:
[Raynes favors] unwinding all outstanding credit-default swaps through a process he calls inversion.Call it the all-bets-are-off rule: You get your bet back, but we're not honoring you're winning ticket.
Under this plan, insurance premiums would be refunded to buyers of credit protection from the entity that wrote the initial contract. And the seller would no longer be under any obligation to pay if a default occurred.
The premium repayments would be made over the same period and at the same rate that they were paid out. If a contract was struck three years ago and charged quarterly premiums, the premiums would then be refunded quarterly over the next three years.
Mr. Raynes’s proposal would treat hedgers — buyers who bought C.D.S.’s to protect themselves because they actually hold the underlying debt — differently from speculators who bought C.D.S.’s simply to bet against a troubled company.
Those guys, the gamblers, would receive only the premiums they paid to an insurer.
Sure, the gamblers get screwed out of their payoff - but they were betting in an unregulated market. Ya pays yer money, ya takes yer chances. I don't see a reason to cripple our economy so we can cover $15 trillion dollars worth of side bets.
Screw that.
(H/t The Big Picture)
No comments:
Post a Comment