In the second paragraph of The New York Times article printed Thursday, February 25, 2010 we read a lugubrious reminder, "Echoing the kind of trades that nearly toppled the American International Group, the increasingly popular insurance against the risk of a Greek default is making it harder for Athens to raise the money it needs to pay its bills, according to traders and money managers."
Does this sound familiar? When you buy mortgages that are below prime and they're owned by people who don't have sufficient income, and the price of their houses upon which the mortgage is based goes down, in other words, assets that are not backed up with value--Then people buy these swaps, which is like a form of insurance; but the trouble with these insurance policies is they're not regulated, so whether the insurance companies will actually pay the people who buy the policies is unlikely because they're not regulated by State or Federal Regulatory Agencies. It's like buying health insurance from a company that can't deliver when you get really sick.
Credit-Default swaps are a form of unregulated insurance. People are betting on a negative outcome. If Greece goes down so will the euro--And that's bad for American businessmen--therefore the dollar will go up and that will hurt American Exports, but it may help European Exports.
2 comments:
american exports? Like alcohol, tobacco and firearms?
I think American exports of fire arms will not be hurt; on the contrary, all three above mentioned categories usually do well when the level of Chaos and suffering goes up, but if oil starts to climb back to over a hundred dollars a barrel, then things will get desperate.
Post a Comment