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Investment Analysis Clubs / Macro Economic Trends and Risks
|Subject: Re: Will the Bailout Plan Work?||Date: 10/5/2008 1:11 PM|
|Author: WendyBG||Number: 257753 of 446616|
<Any chance there are any companies that didn't engage in this mutual suicide pact (oh sorry, meant "sound business practice")? Are those are the companies you invested in because they did recognize the risk premiums were too low...?>
I wish I knew the answer to that. I try to invest in solid companies with long histories of producing goods and services. But the balance sheets don't list "Credit Default Swaps" separately.
Bond default insurance is considered reasonable and responsible. An insured bond is given the credit rating of the insurer. That's why the failure of AAA-rated AIG would have caused such a catastrophe. All their swaps and bonds they insured would have to be downgraded at once. <holding head in hands>. To avoid that, the government simply nationalized them.
<What's taking so long to get a transparent exchange for CDS? The lack of traceability? Why can't they start from a date and say henceforth all CDS sold will be subject to insurance regulations using XYZ mechanisms to ensure transparency? I understand that would do nothing for the current problem, but at least it would limit future additions.>
Occasionally, the WSJ will print some information about this. The computers aren't in place. The software isn't set up yet. And the regulations aren't written fully. The systems needed for traceability and enforcement aren't there.
The stock market evolved over centuries. Getting the CDS system working all at once is complicated.
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