{"id":3833,"date":"2012-03-17T22:22:20","date_gmt":"2012-03-18T02:22:20","guid":{"rendered":"http:\/\/goldstocksforex.com\/?p=3833"},"modified":"2012-03-17T22:22:20","modified_gmt":"2012-03-18T02:22:20","slug":"credit-default-swaps-are-insurance-products-its-time-we-regulated-them-as-such-the-big-picture","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2012\/03\/17\/credit-default-swaps-are-insurance-products-its-time-we-regulated-them-as-such-the-big-picture\/","title":{"rendered":"Credit default swaps are insurance products. It\u2019s time we regulated them as such. | The Big Picture"},"content":{"rendered":"<p>&#8230;The law created a unique class of financial instruments [credit default swaps or &#8220;CDS&#8221;] that was neither fish nor fowl: It trades like a financial product but is not a security; it is designed to hedge future prices but is not a futures contract; it pays off in the event of a specific loss-causing event but is not an insurance policy.<\/p>\n<p>Given these enormous exemptions from the usual rules that govern financial products, you can guess what happened with the swaps. A very specific set of economic behaviors emerged: Companies that wrote insurance typically set aside reserves for expected risk of loss and payout. When it came to swaps, the companies that underwrote them had no such obligation.<\/p>\n<p>This had enormous repercussions. The biggest underwriter of default swaps was AIG, the world\u2019s largest insurer. Without that reserve-requirement limitation, it was free to underwrite as many swaps as it could print. And that was just what it did: AIG\u2019s Financial Products unit underwrote more than $3 trillion worth of derivatives, with precisely zero dollars reserved for paying any potential claim.<\/p>\n<p>via <a href=\"http:\/\/www.ritholtz.com\/blog\/2012\/03\/credit-default-swaps-are-insurance-products-it%e2%80%99s-time-we-regulated-them-as-such\/?utm_source=feedburner&amp;utm_medium=email&amp;utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29\">Credit default swaps are insurance products. It\u2019s time we regulated them as such. | The Big Picture<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8230;The law created a unique class of financial instruments [credit default swaps or &#8220;CDS&#8221;] that was neither fish nor fowl: It trades like a financial product but is not a security; it is designed to hedge future prices but is not a futures contract; it pays off in the event of a specific loss-causing event &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/thepatientinvestor.com\/index.php\/2012\/03\/17\/credit-default-swaps-are-insurance-products-its-time-we-regulated-them-as-such-the-big-picture\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Credit default swaps are insurance products. It\u2019s time we regulated them as such. | The Big Picture&#8221;<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[47],"tags":[144,618,877],"class_list":["post-3833","post","type-post","status-publish","format-standard","hentry","category-derivatives","tag-aig","tag-cds","tag-credit-default-swaps"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Credit default swaps are insurance products. It\u2019s time we regulated them as such. | The Big Picture - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Credit default swaps are insurance products. It\u2019s time we regulated them as such. | The Big Picture - the patient investor\" \/>\n<meta property=\"og:description\" content=\"&#8230;The law created a unique class of financial instruments [credit default swaps or &#8220;CDS&#8221;] that was neither fish nor fowl: It trades like a financial product but is not a security; it is designed to hedge future prices but is not a futures contract; it pays off in the event of a specific loss-causing event &hellip; Continue reading &quot;Credit default swaps are insurance products. 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Break up the \u201ctoo big to fail\u201d banksMy take is that breaking up may be difficult to achieve politically, but raising capital ratios for banks above a certain threshold would discourage further\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1064,"url":"https:\/\/thepatientinvestor.com\/index.php\/2011\/09\/28\/cds-signaling-trouble-for-chinese-banks-macrobusiness-com-au-macrobusiness-com-au\/","url_meta":{"origin":3833,"position":1},"title":"CDS signaling trouble for Chinese banks &#8211; macrobusiness.com.au","author":"ColinTwiggs","date":"September 28, 2011","format":false,"excerpt":"Credit markets are also now showing distrust in Chinese banks. Credit default swaps spreads for Bank of China and China Development Bank have surged according to Soci\u00e9t\u00e9 G\u00e9n\u00e9rale, and they are rising at much faster rates than the rest of Asia ex. Japan via CDS signaling trouble for Chinese banks\u2026","rel":"","context":"In &quot;China &amp; HK&quot;","block_context":{"text":"China &amp; HK","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/china-hk\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":7798,"url":"https:\/\/thepatientinvestor.com\/index.php\/2013\/05\/26\/two-cheers-for-higher-japanese-bond-yields-in-the-spirit-of-milton-friedman-the-market-monetarist\/","url_meta":{"origin":3833,"position":2},"title":"Two cheers for higher Japanese bond yields in the spirit of Milton Friedman | The Market Monetarist","author":"ColinTwiggs","date":"May 26, 2013","format":false,"excerpt":"Market monetarist Lars Christensen gives an insight into rising Japanese (JGB) bond yields: .....the markets do not think that the Japanese government is about to go bankrupt. In fact completely in parallel with the increase in inflation expectations the markets\u2019 perception of the Japanese government\u2019s default risk have decreased significantly.\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":61404,"url":"https:\/\/thepatientinvestor.com\/index.php\/2025\/03\/20\/fed-sits-tight-as-economic-outlook-darkens\/","url_meta":{"origin":3833,"position":3},"title":"Fed sits tight as economic outlook darkens","author":"Colin Twiggs","date":"March 20, 2025","format":false,"excerpt":"The Fed has kept the funds rate steady at 4.25% to 4.5% since December. The threat of a trade war and the increased risk of a sharp price jump have ensured Fed caution over further rate cuts. The FOMC dot plot below shows four participants expect no cuts this year,\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"FOMC Dot Plot","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2025\/2025-03-19-dotplot.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2025\/2025-03-19-dotplot.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2025\/2025-03-19-dotplot.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":13228,"url":"https:\/\/thepatientinvestor.com\/index.php\/2016\/04\/28\/imf-warns-about-chinese-debt\/","url_meta":{"origin":3833,"position":4},"title":"IMF\u00a0warns\u00a0about Chinese\u00a0debt","author":"ColinTwiggs","date":"April 28, 2016","format":false,"excerpt":"From FT (via the Coppo Report at Bell Potter): China\u2019s leaders need to look beyond the current solutions being floated to tackle the country\u2019s mounting corporate debt problems and come up with a bigger plan to do so, the International Monetary Fund\u2019s top China expert has warned. The IMF has\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2016\/china-private-debt.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2016\/china-private-debt.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2016\/china-private-debt.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":20921,"url":"https:\/\/thepatientinvestor.com\/index.php\/2020\/07\/08\/gold-ready-for-a-sell-off\/","url_meta":{"origin":3833,"position":5},"title":"Gold: Ready for a sell-off?","author":"Colin Twiggs","date":"July 8, 2020","format":false,"excerpt":"Dimitri Zabelin at DailyFx.com published this recent note on gold's prospects: Gold Prices, XAU\/USD, Coronavirus, Corporate Debt \u2013 TALKING POINTS Gold prices could retreat if a second wave of the coronavirus hits the global economy XAU\/USD losses may be amplified by rising unemployment figures, weak price growth Gold may surrender\u2026","rel":"","context":"In &quot;Gold &amp; Precious Metals&quot;","block_context":{"text":"Gold &amp; Precious Metals","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/gold-commodities\/gold-precious-metals\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/3833","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=3833"}],"version-history":[{"count":0,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/3833\/revisions"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=3833"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=3833"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=3833"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}