House Prices

[Dark Moomin 10]

Can someone please explain CDS? Because I am genuinely interested and didn't see the program and don't know!

[Stebbil 10]

ME TOO! It seems like no one actually knows!

[Phylis 10]

Can someone please explain CDS? Because I am genuinely interested and didn't see the program and don't know!

 

Its on More 4 tonight. I would recommend watching it.

[samstar999 10]

What is CDS please? SORRY! Just found out further up - ignore me!

[samstar999 10]

Can anyone explain it really briefly?

[sham71 10]

Here goes.....

 

If someone has bought some fixed income products (for example some bundled up sub prime loans from a US bank), they can offset the risk of default by buying a Credit Default Swap (CDS). They are in effect buying insurance and the risk the transfers to the seller of the CDS (as it would to an insurance company).

 

So the problem now is that the companies that have been selling the CDS's are having big financial problems. So they may not be able to honour the contract in the event of a default. Just as if Norwich Union couldn't pay you for flood damage as they had run out of money. So the products that people have bought suddenly become worth a whole lot less as the insurance they have on them is worthless.

 

The CDS industry is worth $100 trillion ($100,000,000,000,000) and is totally unregulated (as the regulators probably don't understand it).

 

The biggest buyers of CDS's have been UK banks.

 

So there may well be a huge increase in write-offs by the banks and they will become even more averse to lending each other (and us) money.

[sham71 10]

sham71, I know that you and Phylis don't agree but can you stop this continous low level sniping please.

 

You've been absent from this thread for a long time, Tony. Have you changed your views?

[samstar999 10]

Thanks Sham71

[Tony 10]

You've been absent from this thread for a long time, Tony. Have you changed your views?

 

I dipped out because I got fed up of your haranguing, and I don't want to see you doing it to other people.

 

Have you checked what I said about interest rates all those months ago. I have a 100% success rate so far Time will tell eh?

 

/signing out again

[sham71 10]

I dipped out because I got fed up of your haranguing, and I don't want to see you doing it to other people.

 

Sorry, didn't realise that discussion was called haranguing these days.

 

I guess those that can't discuss, moderate eh?

[Dark Moomin 10]

Here goes.....

 

If someone has bought some fixed income products (for example some bundled up sub prime loans from a US bank), they can offset the risk of default by buying a Credit Default Swap (CDS). They are in effect buying insurance and the risk the transfers to the seller of the CDS (as it would to an insurance company).

 

So the problem now is that the companies that have been selling the CDS's are having big financial problems. So they may not be able to honour the contract in the event of a default. Just as if Norwich Union couldn't pay you for flood damage as they had run out of money. So the products that people have bought suddenly become worth a whole lot less as the insurance they have on them is worthless.

 

The CDS industry is worth $100 trillion ($100,000,000,000,000) and is totally unregulated (as the regulators probably don't understand it).

 

The biggest buyers of CDS's have been UK banks.

 

So there may well be a huge increase in write-offs by the banks and they will become even more averse to lending each other (and us) money.

 

Thanks! That makes all this credit crunch talk make more sense!

[sham71 10]

Thanks! That makes all this credit crunch talk make more sense!

 

No problem, all I'm trying to do is help people to do their own research rather than listening to the vested interests on here and in the media in general.

 

Some people don't like it, but then they have a lot to lose.......