Just Learned This Fact About Credit Default Swaps (CDS)

[Yavin4]

Even if you don't own the underlying asset, you can still purchase a CDS on that asset!?!?! WTF?!?!?!


For those that don't know how a CDS works, let's say you buy a bond from a government, and you're worried that it may default. You can purchase a CDS from an issuer where in exchange for a portion of the premiums from that bond and an up front fee, the CDS issuer will pay you the face value of the bond in the event of a default. The CDS will then take possession of the asset.


What I didn't know until today is that even if you don't own the asset, you can still purchase a CDS on that asset.


That's like being able to buy flood insurance on a home that you don't even own.

[pkdu]

1. Thats what they doubled down on.... the worst of the criminals ended up buying

CDS on Toxic Assets they already sold!!!!

[KansDem]

2. "That's like being able to buy flood insurance on a home that you don't even own."

Or secret life insurance policies on employees who may or may not be working for you when they die.

According to the lawsuit, the policies were for $50,000 - $80,0000 and were taken out on any employee from 18-70 who participated in Walmart's health plan. Walmart stopped taking out the policies in 1995, but continued collecting the money on employees and ex-employees who passed away. Walmart canceled the policies altogether in 2000. Creepy is right. According to CourtTV, only six states, Delaware, Georgia, New Jersey, North Carolina, Pennsylvania, Vermont, allow companies to take out life insurance policies on their employees without notifying them.

The Consumerist

[Celebration]

3. AIG AIG AIG

That's why the bailout of AIG, which offered "insurance" on all this stuff, collected "premiums" all without the capital or ragulation that insurance companies have for regular policies. So what did we do under a Democratic Administration? Paid off ALL the counterparties, such as Goldman Sachs 100% on the dollar for this "insurance" that they had purchased from AIG. AIG couldn't pay it off, and what we did was cover the pure speculation profits of the corporations (GS and others).........because by this point Goldman Sachs had repackaged the loans and sold them off.

[Po_d Mainiac]

11. Paulson & Paulson

should be name tag on a cell door somewhere....somewhere real uncomfortable

[westerebus]

4. Ever play craps?

You can play the pass line (against the guy trying to make his point) or with the guy looking for the seven-eleven to win.

You can bet with the odds, bet on an even number roll, bet on odd number roll, bet he will (not) make his point.

Where do you think they got this idea?

[Yavin4]

5. I Hate It When They Compare Wall Street to a Casino

Because in a Casino, they will give you free drinks, a free room, a little spa treatment, and tickets to a show if you gamble a lot.

What has Wall Street given us for free in exchange for the trillions in bailouts? Bupkiss!!

Comparing Wall Street to a Casino is an insult to Casinos.

[westerebus]

7. You forgot.

The free tickets to the all you can eat buffet. Free parking pass, shuttle service and dry cleaning. So, I've been told.

[vets74]

14. Bingo !

And Vegas pros give a workable c*cks*ck*ng.

[dixiegrrrrl]

6. So, you purchase CDS on a race horse losing, then rig the race so the horse loses.

Which essentially is what Goldman Sachs and other banks have been doing, except the "horses" are bonds they sold to whole countries, then demanded to be paid when the bonds and the countries collapsed.
After they bet on the collapse.
Made money selling the bonds, made money on the CDS of the collapsing bonds.

Set fire to a building for insurance, go to jail if you get caught.
Set fire to a country, no problem.

[Po_d Mainiac]

10. you left out

get a rating agency to odds the pony at 1:1

[zippytheplatypus]

8. counterfeiting!!

Just like selling naked short, its all pure counterfeiting! This is why 90% of all derivitives need to be illegal if not more & Glass-Steigel HAS to be reinstated. Look at what JPM is doing to the COMEX silver position, natural ratio to gold is 18:1, that naked short position has kept silver down at 40:1 for years. All these counterfeit derivitive devices are nothing but blatant manipulation & the worst most damaging thing in the world they could attack is real estate & look where they are.. if you think the CDS is bad look at CDOs, that's even worse.

[Po_d Mainiac]

9. Bingo!

do a google....CNBC (in one of their frail moments) ran a piece on this back a few years ago...I believe the title was "House of Cards"

CDS's were what crushed AIG...

[snot]

12. Pls don't take this amiss, but what I'd like to know is . . .

why is it taking so long for everyone to get this?

Many on DU and elsewhere have been saying it 'til we're blue in the face since 2008.

How can we communicate this kind of thing better, to more people, and quicker?

[vets74]

13. Bingo !

That's why these contracts fell under New York State and Delaware insurance law.

Which is why Larry Summers made sure to have state laws nulled in the Federal statute.

Which is why Common Law Fraud is claimed by the big lobbyists, big lawyers, big politicians to have died a quiet death.

Which is why SRO Self-Regulating Organizations such as NYSE have been bold to allow naked shorts -- selling stock the sell-sider brokerage doesn't own and then even not delivering later.

Which is organized crime and RICO eligible.

Why not ?