From Bloomberg -
Berkshire Hathaway Inc. Vice Chairman Charles Munger said he supports an outright ban of credit- default swaps to prevent speculators from profiting on the failure of companies.
...I would eliminate it entirely -- 100 percent," Munger said in a Bloomberg Television interview today. "That’s the best solution. It isn’t as though the economic world didn’t function quite well without it, and it isn’t as though what has happened has been so wonderfully desirable that we should logically want more of it."
Henry Hu elaborates further on the motives of default swap buyers-
The proliferation of credit-default swaps ...can eliminate incentives lenders have to keep companies out of bankruptcy... so- called debt decoupling created by derivatives.
Creditors that have hedged themselves "might well want its borrower to go into bankruptcy and have incentives to use its control rights to help grease the skids," Hu told the House Committee on Agriculture, which oversees the Commodity Futures Trading Commission.
Credit-default swaps, which are used to hedge against losses (ie- on a bond) or to speculate on a company’s ability to repay its debt, pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent.
"The whole mass of incentives created is quite counterproductive," Munger said. Buyers of the swaps get a "vested interest in the destruction of some business."
A "vested interest in the destruction of some business." Like GM, or AIG.
Imagine if when your car insurance company was under-capitalized, they had to cough up $2,000 in collateral to every car they insured. Crooked sweet deal for Lord Blankmind and Diamond Jim Dim-one.
It really doesn't take a genius to figure out how to scam the situation.
And it isn't just businesses. The whole foreclosure crisis looks like it was created just so that Naked Credit Default Swaps could be cashed out. The first domino to be followed by other debt backed bonds, commercial property and muni bonds until the Federal Government gets downgraded.
Think about it. The higher the risk, the more likely the payout. Which is why they won't modify loans. Why they keep jacking interest rates and fees on credit cards, bank accounts and closing credit lines. They get paid to destroy us.
This is what our founding fathers revolted against. Transnationals usurping the government and oppressing local communities.
For the transnational banks Geithner's Plans are a win-win. Either we pay them off or our government goes down trying.
Fuck you Timmy. Fuck You Jim Dimon and Lloyd Blankfein!
FROM THE FINANCIAL INDUSTRY -
Credit-default swaps "play an important role in the growth and function of our nation’s and the global economy," Robert Pickel, CEO Swaps and Derivatives Association.
Cancer cells "played an important role in the growth and function of" the lumps in my mother's guts. That doesn't make them desirable.
"Amidst the current financial turmoil, the CDS market has performed well, remained liquid and is providing an important price signaling function," Pickel said.
Of course they have, Credit Default Swaps' success require financial failure. Lucky us, Default Swaps are doing great. That's like betting on respiratory infections after 9-11. That's like betting on prosthetics and opiates during a war. All Credit Default Swaps have done is increase the likelihood of more malaise. Fuck you Mr. Pickel.