Comments on: How all CDS are at risk of not paying out http://blogs.reuters.com/felix-salmon/2012/03/05/how-all-cds-are-at-risk-of-not-paying-out/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: TFF http://blogs.reuters.com/felix-salmon/2012/03/05/how-all-cds-are-at-risk-of-not-paying-out/comment-page-1/#comment-36695 Fri, 09 Mar 2012 15:02:06 +0000 http://blogs.reuters.com/felix-salmon/?p=12341#comment-36695 “Ever noticed how all insurance is a scam?”

JP, it is all about income smoothing. Insurance is an EXPENSE that people voluntarily incur so that their costs will be more predictable. Better to spend $1000 annually than to spend $0 most years and then get hit with a $19,000 charge one year out of twenty.

That said, most people buy far too much insurance. Insurance should begin with a large deductible. If you have $5k in the bank, then your insurance policies should all have at least a $1k deductible off the top. If you have $50k in emergency savings, then a $10k deductible is not excessive. Priced properly, high-deductible policies eliminate paperwork and save you money — which you can put towards a healthy emergency savings account.

If you have no savings, then you are forced to insure against even the smallest unanticipated expenses. That gets very expensive, very quickly.

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By: JP007 http://blogs.reuters.com/felix-salmon/2012/03/05/how-all-cds-are-at-risk-of-not-paying-out/comment-page-1/#comment-36658 Thu, 08 Mar 2012 07:57:13 +0000 http://blogs.reuters.com/felix-salmon/?p=12341#comment-36658 Ever noticed how all insurance is a scam?
Why do societies have a love affair with the scam that is insurance in all its many forms?
Insurance like Governments are Santa Claus(e) for adults.

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By: Danny_Black http://blogs.reuters.com/felix-salmon/2012/03/05/how-all-cds-are-at-risk-of-not-paying-out/comment-page-1/#comment-36626 Wed, 07 Mar 2012 20:10:28 +0000 http://blogs.reuters.com/felix-salmon/?p=12341#comment-36626 Sechel, so you have real time info on who holds what in AAPL?

Foppe, yet another example if talking gibberish.

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By: Foppe http://blogs.reuters.com/felix-salmon/2012/03/05/how-all-cds-are-at-risk-of-not-paying-out/comment-page-1/#comment-36614 Wed, 07 Mar 2012 15:20:21 +0000 http://blogs.reuters.com/felix-salmon/?p=12341#comment-36614 JayCM: they can only net to zero if you ignore time and assume perfect liquidity. Doing so is not particularly realistic.
Secondly, whereas insurance becomes cheaper when more people enroll, CDS gets ever more dangerous, because the distribution of risk leads inexorably to the chances for big problems cropping up all at once rising. In other words, the insurance analogy is propaganda.

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By: Sechel http://blogs.reuters.com/felix-salmon/2012/03/05/how-all-cds-are-at-risk-of-not-paying-out/comment-page-1/#comment-36609 Wed, 07 Mar 2012 10:13:22 +0000 http://blogs.reuters.com/felix-salmon/?p=12341#comment-36609 Pricing means knowing the size and volume of prior trades, who holds which position, etc. There’s a lot more that goes into this than calling up a few dealers for competing quotes or looking up posted bid/ask spreads of similar quality to BBA libor postings.

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By: Danny_Black http://blogs.reuters.com/felix-salmon/2012/03/05/how-all-cds-are-at-risk-of-not-paying-out/comment-page-1/#comment-36603 Wed, 07 Mar 2012 04:30:13 +0000 http://blogs.reuters.com/felix-salmon/?p=12341#comment-36603 Sechel, the buyside can use this new fangled technology called a “phone” to “call” dealers and ask for what we in the biz call a “quote”. Amazing what you can do with technology…. Assuming of course they can’t be bothered to type into a BBG terminal.

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By: TFF http://blogs.reuters.com/felix-salmon/2012/03/05/how-all-cds-are-at-risk-of-not-paying-out/comment-page-1/#comment-36583 Tue, 06 Mar 2012 18:01:19 +0000 http://blogs.reuters.com/felix-salmon/?p=12341#comment-36583 Ah. What a mess!

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By: alea http://blogs.reuters.com/felix-salmon/2012/03/05/how-all-cds-are-at-risk-of-not-paying-out/comment-page-1/#comment-36582 Tue, 06 Mar 2012 17:34:26 +0000 http://blogs.reuters.com/felix-salmon/?p=12341#comment-36582 @TFF:
Would be hard to justify delivering the package, it contains securities to cover accrued interest that CDS buyers aren’t entitled to.

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By: TFF http://blogs.reuters.com/felix-salmon/2012/03/05/how-all-cds-are-at-risk-of-not-paying-out/comment-page-1/#comment-36578 Tue, 06 Mar 2012 15:57:29 +0000 http://blogs.reuters.com/felix-salmon/?p=12341#comment-36578 Felix, I thought your earlier suggestion (tendering the packaged compensation in the CDS auction) made a lot of logical sense. Why would that be illegal? Why could that not be made legal?

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By: fresnodan http://blogs.reuters.com/felix-salmon/2012/03/05/how-all-cds-are-at-risk-of-not-paying-out/comment-page-1/#comment-36576 Tue, 06 Mar 2012 10:46:38 +0000 http://blogs.reuters.com/felix-salmon/?p=12341#comment-36576 This is NOT an authentic Will Rogers quote, although it is often attributed to him: I’m not as concerned about the return on my money as I am the return of my money.

It will take the losses of trillions, much crying, and infinite puditry before people figure out that pieces of paper are no more valuable than the man who made the promise to pay you back.

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