Tuesday links fail to reduce risk

By Felix Salmon
April 21, 2009

A Central Clearing House Doesn’t Reduce CDS Risk: It’s talking about this paper. I think the key point here is that most non-CDS derivatives are traded over the counter, rather than through clearing houses. And as a result, a CDS clearing house might not result in as much of a reduction in counterparty risk as you might think.

The Close: I appear on Canada’s BNN to talk about where TARP money is going, and whether it should be paid back.

The US Singles Map: A very nice piece of information design.

America’s Newest Profession: Bloggers for Hire: A pretty awful column from Mark Penn, with lots of statistics, substantially all of which ultimately come from one Technorati survey which made no real attempts at statistical significance. I’d expect more from a pollster.

File No. S7-08-09: A fabulous letter to the SEC.

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Comments
3 comments so far

That letter to the SEC is a work of art.

Posted by otto | Report as abusive

Oh, come on Felix. This is MARK PENN you’re talking about! He’s running on form!

Posted by Observer | Report as abusive

Re: Duffie and Zhu on CDS clearinghouse

Duffie and Zhu argue that a CDS clearinghouse, by removing (quite a bit of) CDS from current bilateral clearing agreements, may actually increase the net risks a bank faces if a counterparty defaults. Essentially their focus rests heavily on the dangers of a clearinghouse failure.

This is really a silly argument. The whole point of having a clearinghouse or exchange is that dealers are coming together to tax themselves to ensure that the market functions well. If the dealers are unwilling to put up the funds necessary to bailout the clearinghouse, then that is proof positive that the market is a negative sum game and does not deserve to exist in a market economy.

Yes, the government might have to bail out the clearinghouse temporarily — but there will also be no rational objection to the complete dissolution of the market after the government does so.

Posted by Anon | Report as abusive
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