The CDS witch hunt is turning from the auto industry to the newspaper industry. Several newspaper companies recently failed to gain meaningful interest in their debt exchange offers because the majority of the bondholders were hedged through CDS and, consequently, had no incentive to agree to the exchange. One of the primary complaints about the CDS market was the use of CDS by market participants as purely speculative tools. In this case, the players that hold the debt are hedging their exposure through CDS and capitalizing on a negative basis play. If hedging debt exposure through CDS becomes the next true villain in the attack on derivatives, there is really no hope for this market.
Credit default swaps threaten newspaper cos. [The Deal]
Posted by guest , Jun 23, 2009 2:23PM
Yeah, god forbid companies live up to the terms of their indentures. I love that so many think "oh, we'll just do a debt exchange and everything will be fine".
Posted by guest , Jun 23, 2009 2:24PM
Yeah, f'ing eh! Think about the b@lls some peoople have - bondholders want to p!ss away some random exchange offer and hold out for 100c on the $? Wtf?
Posted by guest , Jun 23, 2009 2:51PM
You know we may want to side with the little old newspapers against the greedy bankers here.
If this happens to the NYT will this set off a chain reaction that hurts DB given the advertising we see from the NYT here?
Posted by guest , Jun 23, 2009 2:53PM
BA-BA-BA-BA-BA-BA-BA-BLANUS!!!!!
Posted by guest , Jun 23, 2009 2:53PM
Thank God I hedged my Kazak bank investment through CDS
Posted by Madmoney , Jun 23, 2009 2:57PM
I've never heard of loan to own.
Posted by guest , Jun 23, 2009 3:11PM
Greggy,
Speaking of hedges, ours need trimmed when you get home.
Love,
Mom
Posted by guest , Jun 23, 2009 3:12PM
1. What if Greg's mom just posted articles instead of Greg? Everyone would be happier.
2. If you are not going to be funny, and thus you don't know your readers, please do not also insult your readers by giving us an Investopedia explanation of rationale for the existence of CDSs.
We all know what they are, some of us, in fact, lost a ton of money on them, or their firms did.
Fine, so maybe if you worked for Bear Stearns or Lehman Brothers you are clueless, but otherwise, stop insulting us.
Posted by guest , Jun 23, 2009 3:23PM
@8
You sound like a nice boy. Would you like to come to Greg's birthday party?
-Greg's Mom
Posted by Anal_yst , Jun 23, 2009 3:30PM
Maxine Waters says hedging should be made illegal!
Posted by guest , Jun 23, 2009 3:55PM
TGFD doesn't understand the big deal here.
Really. What could possibly be wrong with a totally unrestrained, unregulated, shadowy $50 Trillion CDS market that grew from only $1 Trillion in just 7 years?
And the totally unrestrained, unregulated, shadowy $530 Trillion equity-derivatives market that is based upon a regulated equities market of only $34 Trillion? Really. what's the big deal with that?
Why is anyone in Congress, SEC, CFTC even bringing up questions about these damn things?
OTC derivatives didn't have much to do with any kind of economic malaise. Just ask Wall Streeters. They'll tell you.
The Guy from Delaware
Posted by guest , Jun 23, 2009 4:10PM
Help me think this one through, I'm very busy today. What would happen if the CDS market were broken down into two classes: One that pays off in case of default of the underlying, a second that also pays in case of default but also requires that you submit the underlying bond in order to receive the payoff.
Posted by guest , Jun 23, 2009 4:19PM
11 Ease up TGFD. As you might suspect from those volumes, we're making zillions selling and trading these things. Last thing we need is someone watching over us.
Posted by guest , Jun 23, 2009 4:21PM
Anal & Bleaching
do it, dot it
Posted by guest , Jun 23, 2009 4:24PM
-@12
I am a big manufacturer who gives working capital credit to my parts supplier, who happens to be a decent sized company with public debt outstanding. I own CDS on that debt to hedge against this sucker going belly up with my credit extension.
Now, if he does, you also want me to be owning his bonds to be able to make myself whole? My credit extension to him was not "securitised" except by a pledge of generic plant and machinery. Will you accept die-tool bits?
Posted by guest , Jun 23, 2009 4:33PM
Well, it looks as if #15 has actually gotten out of his cubicle before, unlike #12.
Good work...
Posted by guest , Jun 23, 2009 4:41PM
Well, it looks as if #15 has actually gotten out of his cubicle before, unlike #12.
Good work...
Posted by guest , Jun 23, 2009 5:56PM
Let's break up the CDS market into two classes: one the treasury guarantees payment of in event of default of the underlying, and one the treasury doesn't. Is that a good idea?
Posted by guest , Jun 23, 2009 6:15PM
@12
You mean like physically-settled vs cash-settled?
Afraid someone already beat you to that one by about ten years, moron.
Posted by guest , Jun 23, 2009 10:47PM
Hedged KazakBank Exposure very nice.
Posted by guest , Jun 23, 2009 11:33PM
Big Manufacturer@#15...
In the absence of a CDS to insure the credit you extended to your supplier, what would you do?
You'd do what everyone else did before those two creeps invented CDSs back in 1994, the same CDSs that are now the bane of civilization.
You'd do your own due dilligence and not recklessly lend money to someone who's not credit worthy.
Right now, you can be reckless and shift the burden to others via CDSs.
I hope that SEC and CFTC get their way and have "unhindered" regulatory authority over all OTC derivatives.
Perhaps then, people like you would have to do business the old-fashioned way.
The Guy from Delaware
Posted by guest , Jun 24, 2009 3:29AM
#8
You apparently don't know enough to know that the plural of CDS is CDS, not CDSs. Ironically similar to the plural of sheep.
Posted by guest , Jun 24, 2009 3:29AM
#8
You apparently don't know enough to know that the plural of CDS is CDS, not CDSs. Ironically similar to the plural of sheep.
Posted by guest , Jun 24, 2009 8:14AM
Dear TGFD,
sorry was busy on machine floor.
Yeah, back in the day, spent a lot of time and resources doing that 'do your own research' bit, still do a bit of it. It was very wasteful, needed a lot more people on my payroll, and boy, did I get it wrong many times. Ended up mostly dealing with family and friends to avoid getting totally burnt.
Now, my 'accounts' department is much slimmer, and the guy I buy my CDS from is a 'big boy', and pays up when i need that insurance to pay up.
Speaking of which, do you own any insurance? Why?
-Big M.
ps - Try to avoid words like 'reckless' - I am an old fashioned, risk averse guy. I am happy when I can find someone to pay to take risk off my hands.
pps - 'SEC' regulating this? Sure, when they find their own zippers.
Posted by guest , Jun 24, 2009 12:51PM
BigM@#24...
Why would you be extending credit to a supplier of yours? Isn't the relationship one where you typically owe them money for parts you buy?
Your "working capital credit" sounds like the rest of your imaginary bullshit story anyway.
Yes, TGFD has insurance, but as far as I know, no one else is taking out policies on the same things I've insured, and none of my policies are being traded on some OTC market.
BTW, I do hope SEC and CFTC get their way. IF the CDS still exists in its current form after regulation, I hope that the policy cost might make you think 3 times about the value of one. The current structure permits you to use a CDS for a purpose which it was not originally intended.
Oh. BTW, TGFD is glad you equated CDSs with insurance. What I'd really love to see is the CDS plague being overseen by 50 different state insurance commissioners. Wouldn't that be a f'n circus? $50 Trillion of CDS would probably nearly vanish.
Also, the existence of CDSs allows you to be 'reckless' in your lending practices. I think you should ask yourself, "Would I lend money to this guy if I couldn't get a CDS?"
The Guy from Delaware
p.s. Guest@#22/23...
I know, but CDSs sounds a lot better than CDS when used in the plural.
Posted by guest , Jun 24, 2009 2:06PM
Dear TGFD
You have never run a real company have you? How do you expect a small parts maker, who makes steel sleeves for axle shafts for me in a 2 lathe garage shop to buy the blanks, unless I pre-pay him for the job, in part.
Re your 'insurance' - so its good for you to lay off your risk, but not good for me to do the same?
About the 'hell' that will be 50 State regulators in the CDS market, 'plagueing' it - why would you get joy out of making things difficult for people like me?
ps - about your insurance policies not being on the secondary market - you have to get out more. Of course, they are. Swiss Re is the largest broker, and repackages them into securities. You can also buy blocks of raw policies without any smoothing. Trading mortality is actually a decent sized business in many places, and one of the inputs is individual life policies on guys like you and me. Hope that helped.