Re: Credit Default Swap (CDS) question and answer

[David Farber <dave () farber net>]

Begin forwarded message:

From: Newmedia () aol com
Date: October 19, 2008 6:35:35 AM EDT
To: ChrisSavage () dwt com, karl () cavebear com
Cc: dave () farber net
Subject: Re: [IP] Credit Default Swap (CDS) question and answer

Chris:

Sorry, I'm not actually an expert on CDS but a 20+ year financial  
analyst following tech stocks.  Dave and I are old friends and he's  
asked me to comment to help out his IP list audience.

I believe the main reasons why lending has dried up has nothing  
directly to do with the CDS business.  The rules have changed so  
fundamentally that no one knows what will happen.  As a result, cash  
is being hoarded.

If you think that you do not have enough reserves -- presuming that  
the regulators will demand less leverage before long -- then you hold  
onto whatever you have got.  The alternative would be to lend it out  
and then find out that you will be forced to take in a new business  
partner when you must get a cash infusion from Dubai.

What has to happen, as the global finance system "de-leverages," is to  
give the banks some confidence that they can continue to do business  
and are not going to be nailed to the wall in six months.

Taking any strange (i.e. funny interpretations of the laws, etc.)  
actions on CDS would spook people badly.

Hope that helps,

Mark Stahlman
Shanghai China (at the moment)





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