Wednesday, December 2, 2009

Credit Default Swaps will be exchage traded

Voltron says: this is supposed to prevent another AIG situation because the exhange will require collateral to be settled daily. My first thought was "wow, I can buy Credit default swaps on wells fargo now". I'm sure they will make the contract size large to discourage Joe six-pack from buying them, but it's sure to cause CDS volumes to rise. If there are no contract limits, nothing stops the people from buying up more CDS than the company is worth, then blowing up the company.

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