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View Diary: GOP clueless about how sovereign bond market works (212 comments)

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  •  Oh shit. Credit default swaps AGAIN? (5+ / 0-)

    The price of credit default swaps on US Treasuries is rising?  Wait a second.. Why would anyone even imagine a need for a credit default swap against a US Treasury?  It should be unthinkable, because there should be NO risk involved.

    But as we learned in 2008, credit default swaps are a favorite tool of the derivative trader, a low form of life that makes malaria and bubonic plague look benevolent by contrast.  It was derivatives -- mostly credit default swaps, often on mortgages, packaged and shuffled -- that led to the 2008 financial collapse. And they got away with it because derivatives were completely unregulated.

    Now if a US Treasury swap has become a financial instrument, then you can bet your last Euro that there's some bozo trying to make a fortune by swapping it.  If the price has doubled, somebody just made a lot of money on the ones bought before the crisis looked as likely!

    This leads me to suspect that at least some of the Banana Republican congresscritters playing games right now are in cahoots with some traders, allowing their statements and actions to manipulate the markets in ways that their buddies are forewarned about.  It could be a great scam.

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