Credit Default Swap derivatives are the Whole Problem

[4 t 4]

not the mortgage bull they keep spewing. I have been saying that for weeks. It's the bets everyone made on risky mortgages NOT the mortgages themselves. The bottom two derivatives are something you can hold in your hand AND are Regulated the
third Is Not. Nor is it anything you could ever, ever hold in your hand. It is essentialy Unregulated Gambling-Period!
That's also not to say that the houseing problem is not real,

but that is another story. ( How the banks inflated the prices when you applied for a loan and you lost money before the house was even in your name-that is another story )


There are three types of Derivatives:

Futures/Forwards, which are contracts to buy or sell an asset at a specified future date.
Options, which are contracts that give a holder the right to buy or sell an asset at a specified future date.
Swappings, where the two parties agree to exchange cash flows or returns.
The Edge...there is no honest way to explain it because the only people who really know where it is are the ones who have gone over. Hunter Stockton Thompson

[MamaDem]

1. There was an excellent article posted from CNN Money that

breaks this down and shows CDS are the root of all this evil. Called the 56 Trillion Dollar problem...something along those lines. It was from early October/late September. I'll try to find it. I thought it was excellent but scared the hell out of me.

Edit: Typo

[Swede]

2. No regulations,no oversight on tens of trillions of dollars.

This could get real nasty.

[huckleberry]

3. 60 Minutes did a story about this on 5 October

http://www.cbsnews.com/stories/2008/10/05/60minutes/main4502454.shtml

[On the Road]

4. Is There Any Reason that Congress Could Not Invalidate the Contracts?

or possibly invalidate those not backed by actual mortgages?

It's an extreme move, but if the derivatives are going to take down the international system it might be worth it.

[jimshoes]

5. I don't know if they can or can't, but

I hope they do and for all those that were playing the swaps I hope they all get burned and wind up taking their lumps just like the poor stiff who can't pay the loan shark his $150.00 when its due and winds up getting his leg broken.

[On the Road]

8. Based on My Primitive Legal Understanding,

it would seem like there might be two constitutional objections:

1) It would amount to a bill of attainder against specific parties. That objection would not seem to hold water if it were a blanket prohibition naming no names.

2) It is a taking against the holders of the derivatives. This it undoubtedly is, but rights can be outweighed by other rights or for other compelling reasons. An economic collapse would seem to be a compelling reason.

Now, what I have been wondering is that if these derivatives are worth $500 trillion, they must be worth that to somebody. Who is it exactly that is owed all that money?

[prayin4rain]

6. that's what i think...

it seems like they could just say no more we are closing this unregulated market down... get some forensic accountants in try and put the money back where it belongs the best they can .... and just move forward.

[meow2u3]

7. Derivatives period are the problem

Obama ought to get Congress to outlaw such derivatives. This way, it will be much harder to game the market, and thus, the system.

[endthewar]

9. Just tax these transactions

that'll keep the market free and discourage speculation at the same time.