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SEC head calls for transparency on credit default swap
Reuters on Yahoo ^ | 10/18/08 | Chris Michaud

Posted on 10/18/2008 9:13:28 PM PDT by NormsRevenge

NEW YORK (Reuters) – SEC Chairman Christopher Cox has called on Congress to pass legislation that would make so-called credit default swaps more transparent, including requiring that dealers in over-the-counter swaps publicly report their trades and the trades' value.

Writing in Sunday's New York Times, Cox noted that the $55 trillion credit defaults market is more than the GNP of all the world's nations combined, and that credit default swaps "play an important role in the smooth functioning of capital markets."

But, he said, "our markets function best when they are highly transparent," while credit default swaps have "operated in the shadows," with "no public discourse nor any legal requirement for these contracts to be reported to the Securities and Exchange Commission or any other agency."

Having been bought and sold widely and in many cases anonymously," trapping large financial institutions "in a web of transactions," the swaps market has left government regulators with "no way to assess how much risk is in the system."

--snip--

He concluded that giving regulators authority "to bring the credit derivatives market into the sunshine" would constitute a "giant step forwarding in protecting our financial system and the well-being of every American."

(Excerpt) Read more at news.yahoo.com ...


TOPICS: Business/Economy; Government; Politics/Elections
KEYWORDS: 110th; christophercox; coxthepathologist; credit; default; derivatives; sec; swaps; transparency

1 posted on 10/18/2008 9:13:28 PM PDT by NormsRevenge
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To: NormsRevenge

A complete collapse.


2 posted on 10/18/2008 9:16:20 PM PDT by Porterville (Grammar Nazis- Hands off my mistakes!!!)
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To: NormsRevenge

Almost all CDS transactions already go through a private clearing house.


3 posted on 10/18/2008 9:19:04 PM PDT by Moonman62 (The issue of whether cheap labor makes America great should have been settled by the Civil War.)
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To: NormsRevenge

aig management knew that all of those credit default swaps

in their london office were not properly covered.


4 posted on 10/18/2008 9:24:47 PM PDT by ken21 (people die and you never hear from them again.)
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To: NormsRevenge

Eliot Spitzer forced CEO Hank Greenberg out of AIG, and then the company went nuts with these policies.

Read this article about Joseph Cassano and his infamous credit swaps.

http://www.portfolio.com/news-markets/top-5/2008/09/28/AIGs-Derivatives-Run-Amok

Thanks Eliot, for ruining our economy!

I wonder if the timing of Hank Greenberg’s ouster was coincidental.


5 posted on 10/18/2008 9:39:07 PM PDT by TenthAmendmentChampion (Lord please bless our nation with John McCain as president and Sarah Palin as Vice President! Amen.)
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To: rabscuttle385

Ping


6 posted on 10/18/2008 9:39:37 PM PDT by TenthAmendmentChampion (Lord please bless our nation with John McCain as president and Sarah Palin as Vice President! Amen.)
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To: NormsRevenge
The supremacy of finance capital over all other forms of capital means the predominance of the rentier and of the financial oligarchy; it means that a small number of financially “powerful” states stand out among all the rest. The extent to which this process is going on may be judged from the statistics on emissions, i.e., the issue of all kinds of securities. - Vladimir Illych Lenin
7 posted on 10/18/2008 9:40:28 PM PDT by PGalt
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To: NormsRevenge

I wish they had done this before they passed the 800 billion dollar bailout, and then spent more billions buying up bank stock.

If the firms that are on the hook for big CDS payouts were identified, then the financially viable firms would be able to borrow at low spreads and the CDS zombies could be put into chapter 7 where they belong.

In my book, this is years overdue.


8 posted on 10/18/2008 9:41:33 PM PDT by Reverend Wright (Zerobama: leave no America-hating B*st*rd behind.)
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To: PAR35; TigerLikesRooster; bamahead; AndyJackson; Thane_Banquo; nicksaunt; MadLibDisease; ...

Good work, SEC, closing the door after the horses have left.

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Please tag all relevant threads with the aforementioned keywords.

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9 posted on 10/18/2008 10:11:21 PM PDT by rabscuttle385
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To: ex-Texan

Ping!


10 posted on 10/18/2008 10:11:53 PM PDT by rabscuttle385
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To: NormsRevenge

Day late and a dollar short.


11 posted on 10/18/2008 10:20:20 PM PDT by Texas Songwriter
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To: NormsRevenge
“SEC Chairman Christopher Cox has called on Congress to pass legislation that would make so-called credit default swaps more transparent”

Of more concern to me would be transparent Carbon Market swaps and purchases. Let's see not just who is buying and selling but their back grounds.

12 posted on 10/18/2008 10:25:14 PM PDT by JSteff ( It is ALL about SCOTUS, forget the name of the candidates and vote on that!)
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To: Son House

the $55 trillion credit defaults market

what you talkin’ bout Willis?


13 posted on 10/18/2008 10:27:55 PM PDT by Son House ( It takes a Woman)
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To: NormsRevenge
Cox noted that the $55 trillion credit defaults market is more than the GNP of all the world's nations combined

I think we have a problem Skipper.

14 posted on 10/18/2008 10:30:11 PM PDT by eyedigress ( My first 4 wheeler was on the rocks in Fairbanks)
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To: NormsRevenge

Everyone keep in mind these monies are maturity and don’t realise actual debt. The amount would be half whats actual.


15 posted on 10/18/2008 10:35:40 PM PDT by eyedigress ( My first 4 wheeler was on the rocks in Fairbanks)
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To: eyedigress

The “net” notional is even less than that.

Suppose you buy $10mm of CDS, then sell $10mm of CDS on the same company. Since these are two, separate contracts, with slightly different terms, your “total notional” of CDS is $20mm, even though your risk is close to zero.

Unless, of course, your trades are with two different banks, and one of them goes under. Then your risk isn’t so close to zero.


16 posted on 10/18/2008 11:07:04 PM PDT by boomstick (It is not enough to succeed. Others must fail. -- Gore Vidal)
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To: boomstick

Thanks for your input.

I had an entire paragraph written on this and dis-mantled it. All of the securities that are bundled and sold need to have over-sight over a certain limit. Selling AAA to Europe and then folding is fraud. Greed on rates sold this market and we will pay the price.


17 posted on 10/18/2008 11:39:38 PM PDT by eyedigress ( My first 4 wheeler was on the rocks in Fairbanks)
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To: eyedigress; boomstick; Reverend Wright; TenthAmendmentChampion; ken21; Moonman62; NormsRevenge; ...

Question=> How are the mortgages related to “credit default swaps”?

.
“All investors ... are paying a price today for the lack of oversight” of credit default swaps, which Cox describes as being “like insurance contracts on bonds and any other assets that are meant to pay off if those assets default,” he stated.


18 posted on 10/19/2008 5:14:44 AM PDT by Son House ("At Least In Europe, The Socialist Leaders Are Upfront About Their Objectives")
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To: NormsRevenge

I don’t know. Sounds anti-business to me.


19 posted on 10/19/2008 9:10:40 AM PDT by Wolfie
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To: NormsRevenge
SEC Chairman Christopher Cox has called on Congress
to pass legislation that would make so-called credit default swaps
more transparent,...


Lotsa luck there. As Einstein (supposedly) said:

You can't expect the people that caused the problem
to fix the problem!


We know why Cox is in government...for job security no matter
the scale of the disaster.

Cox may have not been the proximate cause of the disaster.
But he's one of the crowd that sat on the sidelines with their
Ivy League J.D.s and/or MBA degrees...and let it happen.
20 posted on 10/19/2008 9:16:24 AM PDT by VOA
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To: NormsRevenge
But, he said, "our markets function best when they are highly transparent,"

Heck, even President Bill Clinton said that...year or two
before the tech crash.

When Cox is almost channeling Bill Clinton...
be afraid, be VERY afraid.
21 posted on 10/19/2008 9:17:54 AM PDT by VOA
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To: Son House

CDS are credit default/debt default insurance, but they can’t call it “insurance” for legal reasons.

Related to mortgages, (maybe someone in the industry can weigh in on this) but as i understand it, CDS were added onto alt-a and subprime mortgage backed securities (MBS) to raise their credit rating to investment grade - so they would have a larger market.

Many of the CDS including those insuring MBS were written without any loss reserves (remember, not called “insurance” so not regulated like an insurance company). When they all went bad at once, the counterparties (AIG etc) didn’t have the money to make good the losses.


22 posted on 10/19/2008 10:21:01 AM PDT by Reverend Wright (Zerobama: leave no America-hating B*st*rd behind.)
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To: Reverend Wright

That’s right. In addition to “wrapping” the bonds with guarantees (which had been done for decades in the municipal bond market by so-called monoline insurers like Ambac and MBIA, enabling the rating agencies to give the securities AAA ratings), there were also explicit CDS contracts where the insurance companies sold protection on the parts that the banks couldn’t sell.

Another piece of the puzzle is that many of the insurers didn’t have to post collateral as the chance of loss increased, so long as their ratings (that word again!) were maintained.


23 posted on 10/19/2008 10:31:05 AM PDT by boomstick (It is not enough to succeed. Others must fail. -- Gore Vidal)
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To: boomstick

“Another piece of the puzzle is that many of the insurers didn’t have to post collateral as the chance of loss increased, so long as their ratings (that word again!) were maintained.”

Rating Agency fudging (and I am guessing out and out fraud/corruption) will probably be a big part of this before we are done.

On the wraps, Jim Cramer (I know, I know...) has estimated that AIG will have $400 billion in wrap losses that the taxpayer will have to make good. If that turns out to be true, then the cost of the AIG bailout may exceed the net cost of the Paulson Plan.


24 posted on 10/19/2008 10:47:47 AM PDT by Reverend Wright (Zerobama: leave no America-hating B*st*rd behind.)
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To: Reverend Wright

Are the sellers of these ‘bundled’ investment vehicles are the ones getting the bail-out money?

Will the buyers eventually get paid their investment plus interest?

Watching on FOXNEWS now, so it’s a little clearer


25 posted on 10/19/2008 12:47:17 PM PDT by Son House ("At Least In Europe, The Socialist Leaders Are Upfront About Their Objectives")
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To: Son House

“Are the sellers of these ‘bundled’ investment vehicles are the ones getting the bail-out money?”

Depends which bailout you mean: with the federal takeover of AIG the taxpayer is going to pay for the CDS written by AIG. For those the buyers of the MBS and CDS (usually, but not always the same entity) will get the AIG bailout money.

Paulson plan bailout money: my understanding that the intent was to buy MBS where the market had collapsed. The CDS contracts are specific to the particular MBS but I assume if the MBS is in partial or total default, the CDS would kick in and the writer of the CDS would owe the government.

For the CDS in default that came from AIG, the treasury will be on both sides of the CDS.

(This is becoming a 21st century version of “we owe it to ourselves!”)


26 posted on 10/19/2008 5:00:32 PM PDT by Reverend Wright (Zerobama: leave no America-hating B*st*rd behind.)
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To: NormsRevenge
This is the first pro-regulatory proposal I've heard related to the crisis that makes some sense. There's no reason for a $50 trillion market to be OTC. We need to get those derivatives onto exchanges with margin requirements.
27 posted on 10/20/2008 9:41:47 AM PDT by curiosity
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To: boomstick
Unless, of course, your trades are with two different banks, and one of them goes under. Then your risk isn’t so close to zero.

You just nailed why this market creates so much systemic risk.

Get these things onto exchanges with some margin requirements and position limits, and a lot of the problem will go away.

There's absolutely no reason to keep a market this big OTC.

28 posted on 10/20/2008 9:45:19 AM PDT by curiosity
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