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Politics : American Presidential Politics and foreign affairs -- Ignore unavailable to you. Want to Upgrade?

To: TimF who wrote (29722)	10/2/2008 11:46:47 PM
From: DuckTapeSunroof	Read Replies (1) \| Respond to of 71588

Re: "Its the new and complex part that's most of the danger, not as much the "unregulated" part." In the particular case of the Credit Default Swap markets I don't believe that is true. Since they HAVE NO ASSIGNED REGULATOR (anywhere.. not in the US, not in London, not anywhere), and the trades are simply counter-party-to-counter-party.. the whole thing expanded rapidly into the the largest financial BUBBLE in the history of the world. And, in common with many other financial bubbles, but I think PARTICULARLY IN COMMON with one of the world's earliest and most FAMOUS financial bubbles --- the South Seas Bubble --- this whole unregulated market quickly turned into a LIAR'S MARKET... because there was no regulator, no assigned exchange to trade on, no one to VERIFY any of the claims that counter-parties made. In one (already notorious) example: an unregulated Hedge Fund sold BILLIONS (in face value) of Credit Default Swaps (essentially: insurance contracts) to a large European Bank --- YET ONLY PUT A COUPLE OF MILLION DOLLARS (less then 1% of the policy value that they sold to the bank) IN A RESERVE ACCOUNT TO BACK THE POLICY! So... when the bank went to collect on the insurance it thought it had bought there was NOTHING THERE. They got STIFFED. The Hedge Fund had been collecting their annual premiums and refused to pay off on the policies. This is happening all over... which is why there is a credit crisis now that is global in nature. No institution knows IF IT CAN TRUST ANY OTHER COUNTER-PARTY... NO MATTER HOW LARGE THEY MAY BE. The whole CDS thing (literally: Trillions) turned into a LIAR'S MARKET... and the credit crisis, the lack of trust in financial institutions that is sweeping the globe, if far larger then the lesser sized American sub-prime market. That is what happens when there ARE NO COPS on the beat... no rules, no standardized products or regulated exchanges where they can trade with full transparency and ready price disclosure.... Liars run amok. (It's just simple human nature: if there is a legal opening providing a way to cheat and make hundreds of millions or even billions... there will never be a shortage of people or institutions willing to drive straight through that opening, and laughing all the way. Greed is a constant in human affairs....)