Comments on: The arguments for stronger derivatives reform A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: Greycap Sat, 06 Mar 2010 13:51:16 +0000 “The CDS market is actually more transparent, with smaller bid-offer spreads, than the cash bond market, and the OTC market in interest-rate swaps, for instance, is likewise just as transparent and participant friendly as its exchange-traded counterpart.”

Yes: spreads on ATM OTC IR swaps are razor thin. They have been narrow enough for years to reflect the convexity basis to futures hedging, and nowadays are also CVA-adjusted.

“the editorial is right about the end-user loophole. It’s been tightened up a lot, but why have it at all?”

Because an economic hedge makes an economic difference to the market maker. You do not need as much collateral to take a fixed price from an oil producer as you would to do the reverse trade. Also, the CVA charge to the desk will be asymmetric. In many cases, onerous but pointless collateral requirements would negate the economic benefits of the hedge to the end user. That would make us all poorer.

By: silliness Sat, 06 Mar 2010 13:47:13 +0000 Goodness knows I can’t go toe to toe with Mr. Salmon on issues like this, but I fear he is missing a fundamental point that my opposition to all the CDS nonsense is based upon.

It’s summarized in this one comment in an article from the Wash. Post: tent/article/2010/03/01/AR2010030103399. html

“Regardless of how much “financial reform” is passed in Washington, the Street will find ways to profit at your expense. That’s what it does.”

This is the trust that has been broken. The little people, who are forced to rely on our 401(k) investments to fund our dreams of one day retiring and passing quietly from this life in peace, have been had. Instead of the market being a place to invest for the long term and fund worthy business plans, the “Street” has become an extortionist extracting its cut from our efforts to make a living and save. They do this under the guise of providing “liquidity”. That’s always the excuse for their fees and profits. There is simply no way to argue the point so we go along not knowing if their threats to knee-cap us are BS or not. It is, of course, my own fault for chasing yield and being uneducated in ways of the “Street”.

Please sir, may I have another?

By: M.G.inProgress Sat, 06 Mar 2010 06:33:19 +0000 Your faith in CDS is actually carrying you away. Let’s put in this way. Do we have more benefits or more costs/risks from having CDS, particularly naked ones, around? Those benefits accrue to whom? What is their contribution to economic growth? Was whe world better off when they did not exist?
You seem to have entered in a circular way of thinking saying that since they exist they may be good and since there is no evidence of CDS speculators (you assume also that speculating is again good…) causing difficulties we should not do anything about it. Then you mix speculators of CDS and of naked shorting. Let’s see the non academic simple case where you buy CDS at low price at the beginning of a story. Then you start to push down the underlying security, either naked shorting or not. Eventually the speculator pockets the profit as the CDS is increasing it’s price and perhaps also the profit of some shorts if some other market players are convinced of the downtrend in the meantime. They are not even speculators they are just traders moving billions and arbitraging all the time. Do you like them?