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Another time bomb going to explode - CDS |
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Written by Wilfred Ling
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Wednesday, 24 September 2008 |
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I heard through the entire congressional committee on the US Treasury requesting for a US$700 billion bail-out package to buy toxic waste exotics. It was a very long hearing. Unfortunately Bloomberg cut off the very long speeches and interviewed some boring no-name technical analysis fellow. Before Bloomberg cut me off, the SEC Chairman Christopher Cox said that he is very concerned about the Credit Default Swap (CDS). These CDS are currently unregulated. My goodness. I did not know that the CDS is unregulated. It means people can do whatever they like about CDS. It is a cow-boy town! Take cover!!
I find it very hard to believe that the super power US is having such a big problem at their backyard. One of the Senators had an axe to grin against Feddie and Fannie. She alleged that a bill to more tightly regulate Freddie and Fannie took 5 years to come to completion. She revealed both companies spent US$100m and sent many lobbyists to exempt the two companies from this tighter regulations. I really couldn't believe it when I heard it. Fed reserve chairman Bernanke also said that there are currently two prices in those mortgage related securities (aka toxic waste): These are the fire sale price and the hold-to-maturity price. By having the government buying at near maturity price, this will encourage market participation and restore the pricing of these toxic waste to above its fire sale price. I think he is foolish as he is using taxpayer money to fund the government for being a market maker. He even said that the US$700b is not really expenditure as they are buying assets. Yeah, even when those toxic wastes mature, I don't think there is anything of value! I say that because these toxic wastes are based on underlying mortgages. The mortgage in the US has already collapsed. The defaults are already there. The congressional hearing seem to be just a show. A lot of them say that the Wall Streets executives need to be held accountable for their reckless in engaging in questionable leading practices such as approving mortgages to those incapable of repaying their loans. What is accountability? Just get sack is it? I read that the executives at Lehman Brothers are being greatly sought after. Where is accountability? |
