Quote:
Originally Posted by IllTestYourGirls
Then why arent other buying it?
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1. You need a huge balance sheet. A government sized balance sheet. Because of FAS Rule 157 you have to carry these products at mark-to-market. Since they could potentially trade down and are highly leveraged it could wipe out your balance sheet while waiting for them to reach maturity.
2. No one wants to sells them at current rates. Some are actually trading at 20 cents on the dollar because there is no market liquidity. The lack of liquidity is creating an additional risk premium and thus lower prices. People will pay for liquidity.
3. Counterparty risk. If you enter into a contract with someone for a credit default swap and someone owes you money what happens if they go our of business?
4. They are difficult to find. There is no central clearing house for them and the products vary considerably from contract to contract. I'd love to buy some myself. Wouldn't you?
Buffett at Berkshire purchased/wrote $40 billion worth of derivative contracts. he got rid of the counterparty risk though. he is the one "holding the money"
Here are Gross' comments.
Critics call this a bailout of Wall Street; in fact, it is anything but. I estimate the average price of distressed mortgages that pass from "troubled financial institutions" to the Treasury at auction will be 65 cents on the dollar, representing a loss of one-third of the original purchase price to the seller, and a prospective yield of 10 to 15 percent to the Treasury. Financed at 3 to 4 percent via the sale of Treasury bonds, the Treasury will therefore be in a position to earn a positive carry or yield spread of at least 7 to 8 percent.