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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Ramsey Su who wrote (45715)11/17/2005 9:47:28 AM
From: Paul Kern  Read Replies (2) of 110194
 
Ramsey,

In some cases their may be no counter party to pay off. As interest rate swaps and CDSes go south, the original holders may assign them to another party who assigns them to yet another party and so on until finally there is a small offshore hedge fund who took the premium and disappeared at the first hint that it may have to pay. As far as I know, there is no system to check the credit worthiness of the holders of these swaps and some of the custom swaps are so mathematically obtuse with multiple rates and deltas in multiple currencies with their own deltas that the holders have no idea of the risk they have assumed.

Children, can you spell "meltdown?"
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