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Swap Defaults: The Next Installment of the Financial Crisis
Firedoglake — ... In an earlier diary, I suggested we impose a punitive tax on naked CDSs. Now I see that taxing won’t work. Most of the players in this market look like Citi, with both purchases and sales of protection. If we tax gains, there won’t be enough money for losers to pay winners, and the problem will be worse. A lot of gamblers are buyers and sellers, not on the same reference creditors, perhaps, and they will need money from the wins to pay off the losses. Crushing the transactions will also affect the ability of the sellers of protection to pay off on hedging transactions, which is ...

Swap Defaults: The Next Installment of the Financial Crisis
The Hollywood Liberal — ... guess how much it can collect from its counterparties. It has to estimate where the losses on protection sales will occur, and where its bets on protection purchases will pay off. That can’t be estimated easily, and Citi will use very conservative estimates internally. The financial statements are confusing on this point, as hedging, netting, and collateral are all lumped together for the entire portfolio of derivatives, including the enormous interest swap portfolio. In an earlier diary , I suggested we impose a punitive tax on naked CDSs. Now I see that taxing won’t work. ...