January 26, 2009
While the amount of credit insurance outstanding is around $30 trillion, Robert Arvanitis, chief executive of Risk Finance Advisors in Westport, Conn., says he believes fully half that amount isn’t problematic because it consists of winning and losing stakes that offset each other.But that still leaves $15 trillion worth of contracts that may be in need of triage.
Thought and whatnot below. Oh and I'm putting my final conclusion above the fold because that's what I really think and I don't want it to be missed in the tl;dr.
Ultimately, I will say this. Each and every person who pays their bills on time and who isn't in over their heads in debt and who attempts to be fiscally responsible should beyond furious about all this. It most certainly appears that the only ones who are being rewarded are those who were utterly irresponsible.
The vaguely intelligent things I have to say, other than that $15 trillion is a hell of a lot of money, are that I am extremely dubious of the idea that more governmental intervention is the key. Also the first paragraph makes me want to say "Oh so the NY Times is going to point out that the Dems are the ones who got us into this mess? I didn't think so." I do totally agree with this though:
"[Mr. Whalen] also recommends that regulators bar underwriters of credit protection from selling new insurance on financial institutions participating in the government’s Troubled Asset Relief Program.“It is absurd for the government to allow private speculators to profit by trading against public-guaranteed liabilities of banks,” Mr. Whalen said."
Oh hells yes. From my limited understanding of the mortgage mess, the overleverage on subprime mortgages occurred precisely because the banks, et al., shrugged and assumed that the government would step in to pay out the guarantees. In that case, it was a completely risk free investment from the lending side. Let's not do that again.
I cannot speak to the other idea, which is basically resetting the clock on all of this, as I heard the concepts whooshing over my head as they flew by. However, I am leery of attempting to differentiate between hedgers and speculators. One person's hedging is another person's speculating. And I do not want the government to be deciding which is which.
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