{"id":5329,"date":"2008-10-30T07:00:53","date_gmt":"2008-10-30T14:00:53","guid":{"rendered":"http:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/?p=5329"},"modified":"2008-10-30T07:07:22","modified_gmt":"2008-10-30T14:07:22","slug":"credit-default-swaps-are-not-the-bad-guys","status":"publish","type":"post","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/5329\/credit-default-swaps-are-not-the-bad-guys\/","title":{"rendered":"Credit Default Swaps Are Not The Bad Guys"},"content":{"rendered":"

David Shafer<\/a> is a frequent commenter here on BHB and his insights often make me think.\u00a0 We do not always agree, but I always listen to what he has to say.\u00a0 He recently posted an interesting and (typically) well written article entitled Credit Default Swaps; The real financial WMD<\/a>.\u00a0 You can imagine from the title his take on these instruments.\u00a0 Part of the article quotes from a recent 60 Minutes<\/a><\/em> segment on credit default swaps\u00a0 called The Bet That Blew Up Wall Street<\/a> which is a hatchet job… I mean fair and balanced investigation for which this particular news<\/em> show has gained such renown.<\/p>\n

I commented on this article to the point that it was obvious I was writing a post, which brings us up to date.\u00a0 I do not agree with the popular sentiment regarding CDS’s and I definitely<\/strong> do not agree with the simplistic view put out by sources such as 60 Minutes<\/em> that imply derivatives are nothing more than gambling.\u00a0 The problem is not with the tool but rather the hand that wields the tool (and no doubt, some of the hands at the helm of the credit default swaps market belonged to real tools,<\/em> if you know what I mean).<\/p>\n

Read this very carefully: Credit Default Swaps serve a very legitimate and important purpose.\u00a0 Derivatives are a must in the market place and here’s why: they provide a hedge on risk.\u00a0 The ability to hedge risk is an extremely important aspect of our markets.\u00a0 Without it equities would be lower, rates would be higher and capital would move more slowly.\u00a0 Derivatives are NOT some bastardized form of gambling.\u00a0 The suggestion by 60 Minutes<\/em> and others that they should be outlawed only reflects their rudimentary understanding of how markets work.<\/p>\n

I’ll give you an example using a derivative called options<\/a>, which were my area of specialty as a floor trader.<\/p>\n

ABC company insures the debt of XYZ company, allowing XYZ company to borrow desperately needed funds for expansion, research and other job creating endeavors from a large pension fund that would not otherwise have bought XYZ’s bonds (lent them the money).\u00a0 Read more<\/a><\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

David Shafer is a frequent commenter here on BHB and his insights often make me think.\u00a0 We do not always agree, but I always listen to what he has to say.\u00a0 He recently posted an interesting and (typically) well written article entitled Credit Default Swaps; The real financial WMD.\u00a0 You can imagine from the title […]<\/p>\n","protected":false},"author":36,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_crdt_document":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[251,8,26],"tags":[],"class_list":{"0":"post-5329","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"hentry","6":"category-big-mother","7":"category-investment","8":"category-lending","10":"no-featured-image"},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":16761,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/16761\/ask-the-broker-why-dont-more-poor-people-own-their-own-homes\/","url_meta":{"origin":5329,"position":0},"title":"Ask the Broker: Why don\u2019t more poor people own their own homes…?","author":"Greg Swann","date":"August 26, 2020","format":false,"excerpt":"Why isn\u2019t there more opportunity for poor people to own their homes? If you were to substitute the word \u201chorses\u201d for \u201chomes\u201d, the question would answer itself, wouldn\u2019t it? Poor people rent rather than own because their income is too low, their credit scores are too low, or their debt-to-income\u2026","rel":"","context":"In "Flourishing"","block_context":{"text":"Flourishing","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/flourishing\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-content\/uploads\/2020\/08\/valentina-locatelli-P8bsrm8KbM0-unsplash.jpg?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":14390,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/14390\/what-might-have-happened-if-the-nar-had-not-caused-this-economic-downturn-we-dont-know-what-we-know-is-that-the-national-association-of-realtors-was-the-sine-qua-non-cause-of-the-great-recession\/","url_meta":{"origin":5329,"position":1},"title":"What might have happened if the NAR had not caused this economic downturn? We don’t know. What we know is that the National Association of Realtors was the sine qua non cause of the Great Recession.","author":"Greg Swann","date":"April 5, 2011","format":false,"excerpt":"This post is grown from a comment left by Brian Summerfield, editor of Realtor magazine. Before I begin, I want to commend Brian for daring to show up here to debate this topic. I think he's wrong, but the man has more guts than the people who pay him. Now\u2026","rel":"","context":"In "Group Therapy"","block_context":{"text":"Group Therapy","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/group-therapy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":4948,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/4948\/why-the-bailouts-dont-work-and-why-wall-street-loves-them\/","url_meta":{"origin":5329,"position":2},"title":"Why the Bailouts Don’t Work and Why Wall Street Loves Them","author":"Sean Purcell","date":"October 14, 2008","format":false,"excerpt":"The stock market came back with a vengeance yesterday.\u00a0 On Friday's episode of BloodhoundBlog Radio we noted that the market was vastly oversold from a fundamental perspective and suggested a rebound after the weekend.\u00a0 This was prescient enough that the Mortgage Cicerone made note of it, which is high regard\u2026","rel":"","context":"In "Investment"","block_context":{"text":"Investment","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/investment\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":8546,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/8546\/the-end-of-no-cost-mortgage-loans-and-other-hr-1728-concerns\/","url_meta":{"origin":5329,"position":3},"title":"The End of No-Cost Mortgage Loans and Other HR 1728 Concerns","author":"Mark Madsen","date":"May 22, 2009","format":false,"excerpt":"The H.R. 1728: Mortgage Reform and Anti-Predatory Lending Act is a problem that all mortgage and real estate professionals need to pay attention to. My first rule of blogging has always been to avoid political discussions, especially if I'm not an expert on every angle of the topic. So, with\u2026","rel":"","context":"In "Dirty Laundry"","block_context":{"text":"Dirty Laundry","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/dirty-laundry\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":18620,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/18620\/overnight-news-if-you-laughed-when-kyle-rittenhouse-said-we-all-know-how-the-fbi-works-the-joke-is-on-all-of-us\/","url_meta":{"origin":5329,"position":4},"title":"Overnight News: If you laughed when Kyle Rittenhouse said, \u201cWe all know how the FBI works\u201d \u2013 the joke is on all of\u00a0us.","author":"Greg Swann","date":"November 23, 2021","format":false,"excerpt":"Much of my speech is ironical. I am a poet, to begin with, and I hate to bore my own ears. And I am a Swann boy, raised into a rapid-fire verbal wit: Homophones, definition-swaps, non sequiturs \u2013 work it and work with it fast or be swept away in\u2026","rel":"","context":"In "Group Therapy"","block_context":{"text":"Group Therapy","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/group-therapy\/"},"img":{"alt_text":"Ya think it's easy?","src":"https:\/\/i0.wp.com\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-content\/uploads\/2020\/08\/BHBNewTopImage-300x225.jpg?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":1891,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/1891\/instead-of-a-bailout-of-troubled-borrowers-why-not-implement-an-equity-sharing-plan\/","url_meta":{"origin":5329,"position":5},"title":"Instead of a bailout of troubled borrowers, why not implement an equity-sharing plan?","author":"Greg Swann","date":"September 5, 2007","format":false,"excerpt":"Via Poor and Stupid, TCS Daily has a free (or at least free-er) market solution to bailouts for struggling mortgage borrowers. The idea? \"[A] debt-for-equity swap with sub-prime borrowers.\" Borrowers would give up 20% of their downstream equity in their homes in exchange for 20% debt and therefore payment relief:To\u2026","rel":"","context":"In "Lending"","block_context":{"text":"Lending","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/lending\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts\/5329","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/users\/36"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/comments?post=5329"}],"version-history":[{"count":9,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts\/5329\/revisions"}],"predecessor-version":[{"id":5340,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts\/5329\/revisions\/5340"}],"wp:attachment":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/media?parent=5329"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/categories?post=5329"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/tags?post=5329"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}