The Economic Crisis in Europe

[Cin]

Originally Posted by Ciaran

If an investor has purchased sovereign debt and the appropriate protection via CDS, they should be able to avail of that protection. The issue is that CDS spreads on European sovereign debt were typically priced too low, given the inherent risks.

If I'm an investor with the appropriate insurance policy (which is what a CDS effectively is) then I want the CDS to kick-in when the default occurs. Simple as that.

I just don't think this is sensible or even ethical. Again hedge funds purchased these bonds from a country on the verge of bankruptcy and then purchased insurance to cover their ass in case Greece defaults and it looks more and more like they actually want Greece to default. It's really despicable to me. I guess it's a good thing I'll never be an investor.

CDS and derivatives have not been around for a long time but off-balance sheet instruments to manage risk which can / have been used for speculation have been around for centuries. These instruments may be more prevalent now but so is the financial services sector, and secondary markets, in general.

We've had casino banking in various forms throughout modern history. As I noted in my earlier post, the South Sea Bubble also destroyed much of the, then, British Empire and, separately, Scottish effectively lost its independence and became a part of the United Kingdom as a result of financial speculation.
The Wall Street crash of 1929 and its after effects is another appropriate example.

My team just won and I want to celebrate and I really don't have the energy to tell you the difference between the crash of '29 and what is happening now. Besides I think you already know. And seriously I think credit derivatives are relatively new forms but whatever. They are toxic in their present incarnation. Toxic and dangerous. And we need more regulation. These financial terrorists have no consciences. They are out of control. And they won't be jumping out of any buildings like they did in 1929. It's not the investors who are losing everything.

Whatever manifesto or propaganda you're reading, you're three and a half years out of date here. The ability to securitise lending has been significantly impacted by the example of the off-balance sheet securitisations of residential and commercial mortgages and their value destruction in 2008.

What like the Communist Manifesto? I am not reading out of date news articles. I'll post some links.

The market isn't there for securitisations with the exception of significantly lower risk assets and, even then, the market is much less liquid.

No, the market isn't there for securitisations? Then what pray tell are credit default swaps? That's not secure? That's not securing an investment? They give risky loans or buy risky bonds or take whatever risks and then insure themselves from failure. With risky loans like what happened with the housing market they can bundle these bad debts sell them and somebody insures them and hopes the loans are defaulted on. I bet in some cases they do even more than just hope. I bet they set it up so defaults happen. Maybe by giving risky loans. Wait isn't that the collapse of the housing bubble. Old news I will agree. But still quite timely. And let's not forget the double dipping that goes on in the form of bailouts.

But here are some more current articles.

http://www.alternet.org/story/153795...y/?page=entire

http://www.economywatch.com/economy-...gedy-27-2.html

http://www.guardian.co.uk/world/2012...imf?intcmp=239