Comments on: Credit Default Swap http://www.livingalmostlarge.com/2008/12/09/credit-default-swap/ Trying to live large ...one step at a time Thu, 18 Mar 2010 14:57:04 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Tim http://www.livingalmostlarge.com/2008/12/09/credit-default-swap/comment-page-1/#comment-4532 Tim Tue, 09 Dec 2008 21:24:27 +0000 http://www.livingalmostlarge.com/?p=2597#comment-4532 I'm not sure it was necessarily betting as it was wishful thinking, ignoring risk, and not determining a fair market valuation on the securities they were insuring. I really wish I could remember the article I read, I believe it was in the economist or businessweek, sometime in summer of 2007 about mortgaged backed securities and the gulf between the insured price and the actual value. the actual value being that there wasn't a real value placed. it was such a good article, because it foretold of the problem of these securities. the article even mentioned the fed placed valuations far below, and i mean nearly pennies on the dollar, versus what the securities were being insured for. you had huge hedge funds involved in this, which really drove these prices and valuations up. the bottom line was, the article had stated there was going to be a huge problem if and when people called on their insurance, because the insurers could not pay the money. this is exactly what happened. what we do now is to place the same transparency and regulatory restrictions on hedge funds as we do any other financial and banking firm. the good news in the economic mess is that hedge funds are dropping like cockroaches. second, is to ensure that proper valuations are made on securities, which was never done. I’m not sure it was necessarily betting as it was wishful thinking, ignoring risk, and not determining a fair market valuation on the securities they were insuring. I really wish I could remember the article I read, I believe it was in the economist or businessweek, sometime in summer of 2007 about mortgaged backed securities and the gulf between the insured price and the actual value. the actual value being that there wasn’t a real value placed.

it was such a good article, because it foretold of the problem of these securities. the article even mentioned the fed placed valuations far below, and i mean nearly pennies on the dollar, versus what the securities were being insured for. you had huge hedge funds involved in this, which really drove these prices and valuations up.

the bottom line was, the article had stated there was going to be a huge problem if and when people called on their insurance, because the insurers could not pay the money. this is exactly what happened.

what we do now is to place the same transparency and regulatory restrictions on hedge funds as we do any other financial and banking firm. the good news in the economic mess is that hedge funds are dropping like cockroaches. second, is to ensure that proper valuations are made on securities, which was never done.

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