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Re: None

Thursday, 02/16/2012 6:56:13 PM

Thursday, February 16, 2012 6:56:13 PM

Post# of 138
Art Cashin
Credit default swaps have grown exponentially over the last decade. Since they are individually written, there is no clear visible record of how many CDS contracts are outstanding. Also unknown is who is involved. The two parties obviously know who the counter-party is but there is no public record that would allow a regulator or a third party to find out who was involved.

As things unraveled in 2008 that lack of records exacerbated the crisis. Bank A could examine the balance sheet of Bank B and see how their assets looked. But were they guarantors of some unseen credit default swaps? If they were, they could be a great risk and not as solid as they might appear. That fear helped freeze the markets. Bank A would not lend to Bank C fearing some unseen CDS exposure. Look at what happened to AIG.

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