Look Who Just Woke Up...

[GRG55]

Cox must be feeling left out, what with Bazooka Hank and Bennie the Hutt hogging all the headlines...

Credit Swaps Must Be Regulated Now, SEC's Cox Says

Sept. 23 (Bloomberg) -- U.S. Securities and Exchange Commission Chairman Christopher Cox said Congress should ``immediately'' grant authority to regulate credit-default swaps amid concern the bets are fueling the global financial crisis...

...The SEC is concerned investors may seek to profit by spreading false information or making trades designed to drive down financial stocks during the credit crisis that has re- shaped Wall Street. The agency is demanding hedge-fund managers, brokerages and institutional investors describe in sworn statements their bets on the companies, including trades in credit-default swaps, the regulator said Sept. 19...

...Cox today said investors who buy swaps without owning the underlying debt may be similar to naked short sellers who sell stocks they don't own or borrow. Such short sales can flood the market and illegally drive down stocks... [They just figured this out now??? :rolleyes: ]

The SEC couldn't regulate a dollhouse teaparty. McCain has it right. Fire Cox's azz.

Also included in the same Bloomberg article...

...Cox didn't directly respond to a question about whether the SEC would consider a temporary suspension of so-called fair value accounting rules, which require companies to mark their assets to current trading prices...

...Bernanke, in his testimony, countered that a suspension of the accounting requirement will hurt investor confidence because ``nobody knows what the true mark-to-market price is.''...

Bennie; here's some news for ya. Nobody knows what the "true hold-to-maturity" price is [should be] either...:eek:

[Supercilious]

Re: Look Who Just Woke Up...

This is getting from ridiculous to surreal.

[GRG55]

Re: Look Who Just Woke Up...

This is getting from ridiculous to surreal.

For once I completely agree with you...

[we_are_toast]

Re: Look Who Just Woke Up...

I'm SHOCKED, SHOCKED to find gambling going on here!

[D-Mack]

Re: Look Who Just Woke Up...

It's a mass awakening

Credit Swaps Move Closer to Regulation With N.Y. Plan (Update2)

By Shannon D. Harrington and Christine Richard


Sept. 23 (Bloomberg) -- New York State's proposal to start regulating part of the credit-default swaps market may accelerate oversight of an industry blamed for helping to almost bring down the U.S. financial system.

New York Governor David Paterson said in a statement yesterday that the state will consider contracts sold to investors who own bonds they are trying to protect from default as insurance. The plan won't apply to contracts purchased by speculators who only want to bet on an increase or decrease in a borrower's creditworthiness and don't own bonds.

Calls for greater regulation of the $62 trillion market have grown after the U.S. had to take over American International Group Inc. and provide the New York-based insurer with an $85 billion loan to cover obligations at a unit that sold protection on securities through the credit-default swap market. The AIG subsidiary was required to post collateral against more than $400 billion of contracts after its credit rating was downgraded.

``I think it's clear to everyone that there's going to be more regulation coming'' said Brad Golding, managing director at Christofferson Robb & Co., New York-based money management firm. ``Is every swap dealer in the world going to have to apply to New York for an insurance license? The bottom line is: good luck with that.''

...

http://www.bloomberg.com/apps/news?p...IsI&refer=home

But weren't they invented to be unregulated and to make money ?

...

III. Third, and the most important use of credit default swaps, there is strong incentive to book the next 10 years'profit today.


Credit default swaps offer banks with the so-called negative-basis trade another accounting loophole besides the earnings smoother discussed above. Using the same example: Take a CDO with a 50 basis point spread over US Treasures. Banks will buy credit default swaps costing them 20 basis points, but by doing so, even they seem to make less profit (50 vs. now only 30 bp spread), banks can actually book the difference in spread for the whole life of this CDO instantly, something called negative-basis trade.


If this CDO life is 10 years, banks can book the whole 10 years of phantom profits this year, even if this CDO defaults sometime in next 10 years. And I don't need to mention its implications for the bonuses of the structured product groups at Wall St firms, or hedge funds with 2/20 fee structure.


In other words, who cares whether this CDO defaults next year, let us just realize the next 10 years of bonuses today! There is a common secret at Wall St. - it doesn't matter whether a product is good or bad, the only thing matters is how you structure it. As former Secretary of the Treasury, John Connely, said to European central banks in 1970s' "It might be our currency (US dollar), but it is your problem". Same thing here. If CDO defaults, they have already bumped up the stock price, cashed out the stock options and their vested shares, collected the yearend bonuses, now it is investors' problem.

...
http://seekingalpha.com/article/7306...-default-swaps