Explain to me why all the naked credit default swaps/derivatives can't be declared null and void insurance contracts? Return any payments made (with interest) and call it even?
A naked derivative is one that was created without enough cash-to-cover. Essentially the investor does not have a short position in to cover if the market does not move in the way the investor planned. It gets complicated when defining a "naked" derivative, but just think of it as everytime a CDS was sold, another was created out of thin air...this adds up quickly and it gets to a point where if you write it off, you're fucked. The CDS market is estimated to have a value of anywhere from $40-$50 Trillion...that's a lot of monopoly money...
It was my understanding that naked meant I was speculating on the price of something in which I had no vested interest. That is I took out insurance on whether or not my neighbor could pay his mortgage. Whereas, covered meant I took out insurance on whether I could pay my mortgage (or the mortgage I supplied to my neighbor as a mortgage broker who kept the loan).
Is that not the type of derivative/CDS that has balloned by some estimates to $60 Trillion, many multiples of the actual value of the mortgaged properties.?
way off topic... but my friend got me into deadwood, and Al is the shit.
A naked derivative is one that was created without enough cash-to-cover. Essentially the investor does not have a short position in to cover if the market does not move in the way the investor planned. It gets complicated when defining a "naked" derivative, but just think of it as everytime a CDS was sold, another was created out of thin air...this adds up quickly and it gets to a point where if you write it off, you're fucked. The CDS market is estimated to have a value of anywhere from $40-$50 Trillion...that's a lot of monopoly money...
As lucky8 was saying, everyone was counting on the value of real estate continuing to rise, therefore making even the worst risks profitable.
Since the dawn of time, people and businesses have gotten themselves fucked when they count too much on rosy scenarios continuing ad infinitum.
True, but last I checked with the dips and dipshits the long-term chart always goes up, while the socialistic outcome is aimed at being flat.
It was my understanding that naked meant I was speculating on the price of something in which I had no vested interest. That is I took out insurance on whether or not my neighbor could pay his mortgage. Whereas, covered meant I took out insurance on whether I could pay my mortgage (or the mortgage I supplied to my neighbor as a mortgage broker who kept the loan).
Is that not the type of derivative/CDS that has balloned by some estimates to $60 Trillion, many multiples of the actual value of the mortgaged properties.?
Wrong... it's Bush's fault, it was under his watch (sarcasm).
Well CDS's are like insurance except you can take ...which were backed by the forecast of rising house prices...