“Remember the liquidity pyramid?"

[Joanne98]

Zerohedge On Banning Credit Default Swaps

Zerohedge has a technical discussion of why hedge fund manager David Einhorn’s call to ban Credit Default Swaps is essentially a call to dismantle the entire fiat money system. Some of the details elude me, as they’re very technical, but the rest seems right to me. There’s no inherent difference between a credit default swap and, say, an interest rate swap, of which there are many more. So Einhorn’s demand is in effect a demand to ban all derivatives…

“Remember the liquidity pyramid?"



As the graphic shows, derivatives account for 1,000% of world GDP, in essence allowing the world to believe fiat money is worth something only courtesy of financial sleight of hand which involved derivatives and securitizations. Yet all those calling for an end to CDS also have to realize that due to CDS intertwined nature, the world fiat system would need to do away with all derivatives (not just CDS), and when you do that you basically eliminate the other hybrid asset classes: securitizations being chief among them. What this would leave us with is a liquidity pyramid which ends with bank loans, which are much more manageable and whose risk can be controlled. It would also leave the world with a fiat currency system, which would lose about 10x of its value overnight, thereby leading to an instantaneous and global unwind of fiat money, and rolling waves of domestically denominated hyperinflation. A spectacular race to the bottom of the asset pyramid. And who will rather commit suicide than see that happen: why the Federal Reserve of course.

Which brings us full circle: an attack on CDS is an attack on excess liquidity, which is an attack on the global asset/liability imbalance (as world GDP and otherwise output has no chance of catching up with the liquidity that is currently available), which is an attack on fiat money, which is an attack on the perpetually low price of gold (because if and when derivatives and securitizations are done away with and tangible assets regain their true value, gold would go up by at least the same magnitude that fiat currencies are devalued), which is an attack on the heart of our broken financial system itself, and, an attack on the Federal Reserve, the Fractional and Central Banking System in principle. Well done David.

We hope Einhorn is successful in bringing more people to understand not just what the risk implications of CDS are (while also demonstrating the positive value that they do in fact provide in a rigged and broken capital market), but also what the underlying thematic subject of his attack really is: a busted fiat system. In essence, David believes in a fresh start. So do we, because on a long enough timeline…”

http://mindbodypolitic.com/2009/12/26/zerohedge-on-banning-credit-default-swaps/

[clear eye]

1. Sounds to me like this would have to be done verrrrry slowly

to prevent terrible suffering. Perhaps one class at a time?

[Goldstein1984]

2. I don't think houses built of cards collapse slowly

They just come tumbling down.

But I think if everyone suffers during the collapse, the least we can do is find a way to make the class that built the card house suffer as much as everyone else.

[Hydra]

3. How about replace a stupid idea

With a good one- "Work Credits"

[eridani]

4. All currency is fiat currency, including gold

Currency is a social contract, and it seems to me that people ought to change the current social contract so that currency once again gets in synch with the real economy.

[OnceUponTimeOnTheNet]

5. Kick and Rec. Thanks Joanne98 for always bringing us good articles to digest.

[Joanne98]

7. You're welcome!

:hi:

[snot]

6. I would be thrilled with any assurance that our currency's devaluation will be

limited to 10%.