Derivatives: Darth Vader's Revenge Message Board

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Non-Tech : Derivatives: Darth Vader's Revenge

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To: Worswick who wrote (1545)	3/23/2010 7:50:22 AM
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U.S. states may be the next dominoes to topple over "The risk is becoming apparent in the credit default swap market, made famous in the Greek blowup. What that market shows is that California is in big trouble, and other states aren't far behind. Credit default swaps (CDSs) allow investors and speculators to buy insurance against a default by a bond issuer. The bigger the risk, the higher the price. Just as insurance on a house with bad wiring is more costly, protection on a country with weak finances is more expensive. The market in state and municipal CDSs is very small, but the trends are telling. First off, the amount of insurance being purchased is on the rise. States are beginning to show up on the Depository Trust and Clearing Corp.'s list of the busiest 1,000 entities for CDS trading. The number of credit default swap contracts outstanding on bonds of states like California, Florida, New Jersey, Texas and Florida has steadily been ticking upward in recent weeks, according to the DTCC, and those five states now have a total of almost $17-billion (U.S.) of CDS contracts outstanding on their bonds. About 40 per cent of that insurance is on California bonds." theglobeandmail.com Jim

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