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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: Skeeter Bug who wrote (101525)	2/21/2009 6:30:22 PM
From: patron_anejo_por_favor	2 Recommendations Read Replies (2) of 110194

Good point, often forgotten. Many of the CDS "lottery-winners" were losers on the other side, the seemingly feckless buyers of securitized rat dung......so the CDS piece merely made them whole (or partially so). Imagine having a stock portfolio hedged by and instrument I'll call "SIS" (like SDS, only inverse-infinite). Then yer portfolio craters, loses 90% of yer value. But yer SIS makes up the loss, or so you think.....but the guarantor, be it $hittygroup or AIG or whoever is now insolvent. Welcome to the wonderful world of counterparty risk! The counterparties exist, or at least did at the time the CDS was written. Of course when it comes time to collect, it's like having h-bomb insurance......<G?> OTOH, a lot of CDS SALES were sold as outright gambling. Just because they thought they'd pick up a few pennies in front of the steamroller....

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