Ramirez
03-05-2010, 18:56
I know most of you find my finance/economic posts boring but this is a good article I sent to Dennis McGeehan.
http://www.rollingstone.com/politics/story/32255149/wall_streets_bailout_hustle/print
My take on it is the financial sector is busy inflating another bubble that is going to burst.
Particularly places like Goldman Sachs are busy buying credit default swaps on sovereign funds like Greece's.
Short aside, a credit default swap is like an insurance taken out against a debt instrument , like a bond or mortage defaulting, the buyer doesn't even have to own the debt instrument.
So while places like Goldman are buying CDS' , I am wondering who the counter party is? I am guessing it is not AIG this time. I am also 100% certain that the counter party is not putting aside the capital necessary to pay off the CDS should places like Greece (Portugal, Ireland, Spain and probably California) default.
So I think the moral hazard of bailing out AIG and thus Goldman is in full effect here...Goldman is probably assuming the US government will bail out whoever the counter party is again.
Given that Obama has the knee pads ready every time the financial sector's balls are feeling a bit dry I think they are probably right.
My advice to the US taxpayer, organize now and get ready to fight yet another bailout.
Edit: I should say I am using Goldman as an example because I know for sure they are buying CDS on Greece, there are a bunch of other financial sector players doing the same.
http://www.rollingstone.com/politics/story/32255149/wall_streets_bailout_hustle/print
My take on it is the financial sector is busy inflating another bubble that is going to burst.
Particularly places like Goldman Sachs are busy buying credit default swaps on sovereign funds like Greece's.
Short aside, a credit default swap is like an insurance taken out against a debt instrument , like a bond or mortage defaulting, the buyer doesn't even have to own the debt instrument.
So while places like Goldman are buying CDS' , I am wondering who the counter party is? I am guessing it is not AIG this time. I am also 100% certain that the counter party is not putting aside the capital necessary to pay off the CDS should places like Greece (Portugal, Ireland, Spain and probably California) default.
So I think the moral hazard of bailing out AIG and thus Goldman is in full effect here...Goldman is probably assuming the US government will bail out whoever the counter party is again.
Given that Obama has the knee pads ready every time the financial sector's balls are feeling a bit dry I think they are probably right.
My advice to the US taxpayer, organize now and get ready to fight yet another bailout.
Edit: I should say I am using Goldman as an example because I know for sure they are buying CDS on Greece, there are a bunch of other financial sector players doing the same.