Friday, April 29, 2011

Comments on NYT Article Today -- Read!




April 29th, 2011

11:48 amThe credit default swaps market didn't used to exist! Okay? And the global financial world functioned very well without it. Was dramatically safer, in fact. It is simply impossible to make the argument that giving big banks the ability to secretely bet against bondholders serves any essential purpose. But the important thing to remember is that those bets would no longer be attractive or valuable if transparency was required.

Louise Story has done some tremendous work on this subject, but I strongly take issue with the description of the OTC derivatives market as a "corner" of the financial world. At $600 trillion, it dwarfs all other activity. Major players in this market have trading floors as big as football fields devoted entirely to derivatives. It's not a corner, it's the whole house, and it is rotten to the core.

I'm glad the European Commission is saying these things. Political leaders and regulators in America, the epicenter of derivatives activity, should be saying this. But there is no such thing as transparency and safety in this casino. The OTC market would not have grown into the cancerous beast it became if there had been transparency all along. You cannot have a game of poker if everyone has to show their hands from the start. The market is DEPENDANT on secrecy and danger because it is gambling, not risk management, for crying out loud. It also became massively popular because it was such a profitable way to predate on less sophisticated counterparties, entire countries, sometimes. It is also institutionalized tax evasion and accounting fraud. If you bring it into the light, you kill its purpose.

It is also a gross misrepresentation to say that derivatives only "added to the panic during the financial crisis". Derivatives directly CAUSED the financial crisis! They took down Bear and Lehman and Merrill and AIG and Greece and Iceland and Ireland, and countless others, just as they had devastated or destroyed LTCM, Japan, Russia, Mexico, Argentina, Orange County, Barings, Sumitomo and others in years past.

Read Steinherr and Partnoy and Das and a host of others.Recommend Recommended by 13 Readers

Thursday, April 21, 2011

Tech Tips -- Not All Homeowners Insurance is the Same

Here’s one example: The standard contract insures a home against risk of “direct physical loss to property,” he noted. But some insurers have altered that language to say “sudden and accidental” direct physical loss to property. (His paper doesn’t identify which specific insurers use the language, he said, because he wants to focus on changes regulators should make.) Such wording, he said, might be used to deny claims for vandalism or from a threat that grew over time — say, an old tree that weakens and eventually falls on a house. It’s conceivable, he said, that the language could be used to deny claims for theft on the grounds that the loss wasn’t “accidental.”

May 11, 2011: I checked my homeowners policy with Cincinnati Insurance Company and they are in the "good guys" camp.  At least I am 90% sure, without reading the 40+ other pages plus the second document which is the June 2001 addendum carefully.

Monday, April 18, 2011