The worst part of this nightmare is that Bernake, Paulson and an army of valuation experts can not mathematically calculate the way to unwind these products. There are so many darn variable parts to these highly complex structured products, that it's like solving an 8 variable math equation; where you don't know the values of 5 of the variables.
John.. it's my understanding from various readings, that CDS are primarily traded via indices like the ABX, CDX and itraxx:
en.wikipedia.org
guardian.co.uk
So, as I understand it, much of the manipulation has allegedly been taking place in the swaps markets. So what if some of that $700 Billion is allocated to propping up those CDS so the shorts are forced to cover?
seekingalpha.com
And to reiterate this author's explanation:
moneymorning.com
Here’s the problem: If you own a portfolio of CDOs, and the only way to value them (or, at least, to develop a valuation that others are reasonably certain to respect), is by looking at them through the prism of an index of credit default swaps on them, you’re at the mercy of the index. Your portfolio, your securities may not be so bad, but you may not really know based on mortgage-duration analysis and foreclosure events that you can’t calculate. So you value, or mark-to-market, against the closest index.
So.. if we're seeing MBS marking to market against the CDS indices, it would seem to imply the quickest manner in which to raise the valuations is to take a long position in the indexes, right??
Also, I see that the $62 Trillion notional value is now down to $55 Trillion as counter-parties are apparently tearing up the agreements.
nakedcapitalism.com (I like this website, btw.. some good stuff there).
Hawk |
