Wednesday, December 10, 2008

Put the CDS market out of its misery?

"Put the credit default swaps market out of its misery". That's the prescription put forth by writer John Dizard in a recent FT column piece.

Let's hear what John has to say about this controversial segment of the credit derivative world.

"For several years, I have been among those calling for thoughtful, prudent, moderate steps for the reform of the credit default swaps market. They should be put on exchanges, put through central clearing houses, settlement backlogs reduced and then eliminated . . . etc.

I was wrong. The global credit default swaps market should just be liquidated, the contracts allowed to expire and the booby traps defused. Where they can't be defused, they will explode, and we will have to deal with the loss of capital and litigation.

Essentially, while the back office messes of the CDS market are being cleaned up, that leaves the question of why we need these things. We don't. The outstanding credit default swaps should be offset against each other, where possible, and the rest allowed to run off or be paid out as defaults occur."

Pretty strong stuff, there. Any CDS market participants or seasoned observers/readers want to weigh in?

Speaking of credit, be sure join us tomorrow for links to a thorough overview of the current state of the credit markets (charts and graphs included). All courtesy of one of the very fine bloggers listed in our blogroll (see our righthand sidebar "Blogs" listing for more). See you then!

Related articles and posts:

1. Barron's on Credit Default Swaps - Finance Trends Matter.

2. Derivative clearing: make it the law? -