We agree mostly, but I still say they should void the CDS contracts and when I say "they" I mean the government not AIG.
All other references to the wold "they" is pertaining to whoever was involved.
I am not confused. AIG was insuring securities in the form of CDS and they (AIG) did this to bypass insurance regulations. Under insurance regulation they would have to had the means to pay.
And the firms insuring these securities through AIG didn't have to own the underlying security, again thanks to the regulation loopholes created by CDS. Making bets - moral hazard.
For example if everyone in your neighborhood was allowed to take out an insurance policy on your home than alot of people would have alot to gain if your house brunt down. - Moral Hazard.
This makes me wonder exactly what securities these firms are collecting the insurance from and if those firms had any prior transactions underminding those securities.
Quote:
Declare all CDS contracts, worldwide, as null and void. There is precedence for this:
During the Great Depression, many debt contracts were indexed to gold. So when the dollar convertibility into gold was suspended, the value of that debt soared, threatening the survival of many institutions. The Roosevelt Administration declared the clause invalid, de facto forcing debt forgiveness. Furthermore, the Supreme Court maintained this decision.
http://www.moonofalabama.org/2008/09...on-declar.html
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