Reading financial news in the Times is often like wearing your glasses in the steam room, and this article on the impending doom coming test to credit default swap market is no exception. This market is actually less difficult and "arcane" than the reporting makes it out to be. It's really an old-fashioned insurance scam with extra zeroes. Buy a policy, sell it to some other schmuck, who sells it to some other schmuck, and eventually somewhere down the line some asshole's got a chop-block resold insurance certificate and no way to figure out who's supposed to make good on it. Oops!
Look, I don't really think that the United States should be on a gold standard, but at the root of wealth there really ought to be some kind of recoverable asset with some kind of durable value. Something valued for its rarity or utility, or something produced through labor, or a little of both. $45.5 trillion worth of electronic money buying electronic money insuring electronic money used to trade in electronic money is all fine and well, but if at the end of the day the Repo man can't take a TV and a decent dinette set out of the deal, then what we're really talking about are the finances of Freedonia:
RUFUS T. FIREFLY [to Trentino] Now, how about lending this country twenty million dollars, you old skinflint?
AMBASSADOR TRENTINO: Twenty million dollars is a lot of money. I'd have to take that up with my Minister of Finance.
FIREFLY: Well, in the meantime, could you let me have twelve dollars until payday?
TRENTINO: Twelve dollars?
FIREFLY: Don't be scared, you'll get it back. I'll give you my personal note for ninety days. If it isn't paid by then, you can... keep the note.
3 comments:
This is good:
In late 2005, at the urging of the Federal Reserve Bank of New York, market participants agreed to advise their trading partners in a swap when they assigned contracts to others. But it is unclear how closely participants adhere to this practice.
In related news, in late 2005, at the urging of the Vatican, all practicing Catholics agreed to strictly follow the tenth Commandment prohibiting the coveting of one's neighbor's wife, but it is unclear how closely participants adhere to this practice.
And I'd like to know: how rich do you have to be before the government stops requiring you to do stuff, and merely "urges" you to do it?
That story, and the post, remind me of a story told by Molly Ivins about John Connolly. He was in bad shape financially, but at last the Lord came through:
"Gentlemen, I have good news and bad news. The good news is that Chase Manhattan has given us a $500 million line of credit."
"Glory be! What's the bad news?"
"We have to come up with $500 by Monday."
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