Worldwide Economic Disaster Imminent Unless US Stops CDS Speculators Goldman, Morgan, and Others

January 28, 2009
A very important, well reasoned piece by The Institutional Risk Analyst at:  

suggests worldwide economic/financial disaster is imminent unless and until the US government cuts off CDS speculators like Goldman, Morgan, and others who have tens of trillions in monstrously leveraged negative CDS bets– but no underlying risk interest, so can’t deliver a bond.  The piece doesn’t quite say so, but the monstrous leverage is certainly tantamount to abusive naked shorting of the underlying debt/business– not to mention the self-perpetuating, self-fulfilling power it wields.

It makes several references to insurance industry standards– and argues for CDS protection to be available only to those with an underlying [sic. insurable] interest, (evidenced by being able to deliver the bond, the default of which, you were supposedly hedging with the CDS.)   

The piece refers to a powerful “CDS Mafia”– but refrains from mentioning that these gumbas ran roughshod over long-standing insurance laws by prestidigitating a market innovation that’s allowed them to walk away with billions in profits and destruction wrought–  but which would clearly be against public policy and therefore unenforceable, if called bond “insurance”– instead of a Credit Default Swap. 

a few excerpts:
“commercial banks, insurance companies and commercial companies, [are] all…targets for the CDS Mafia and the unlimited leverage they use as weapons against us all to generate speculative gains.”

 “The Fed and Treasury must immediately force the CDS market onto exchanges and go back to the pre-Delphi bankruptcy model to require physical delivery of the underlying bonds in order for purchasers of protection to collect their insurance payments.”

It’s about time this critical reality got some public “leverage.”