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To: Chispas who wrote (74855)	2/18/2008 4:56:13 AM
From: Chispas	Respond to of 116555

Fleckenstein - "It's too early to be bullish" . articles.moneycentral.msn.com

To: Chispas who wrote (74855)	2/18/2008 10:29:24 AM
From: Jim Fleming	Read Replies (1) \| Respond to of 116555

Chispas re Gretchen Morgenson - "..one of the challenges facing participants in the credit default swap market is that the market value amount of the contracts outstanding far exceeds the $5.7 trillion of the corporate bonds whose defaults the swaps were created to protect against..." Shouldn't that be face value since there isn't any reliable market value for the derivatives? Jim

To: Chispas who wrote (74855)	2/18/2008 9:51:20 PM
From: Gemlaoshi	Read Replies (2) \| Respond to of 116555

Chispas, Thanks for the excellent article. Gretchen Morgenson is an excellent writer, and I enjoy her articles. However, that article leaves much unsaid. CD swaps "sort of" act like insurance on debt, but the ISDA contracts on CD swaps state that swaps ARE NOT INSURANCE. As such, they escape insurance regulation and insurance law. If one had to have an "insurable interest" (e.g. ownership of a bond) then the CD swap notional value could not be several times that of the bonds they supposedly insure. When the **it finally hits the fan, swap counterparties are not going to go BK honoring those contracts. The response will be "so sue me and see what you get". At some point the financial burden outweighs the legal risk and the settlement system will seize up. There are other problems with swaps that make the VaR models laughable. But that's for later... Dave