They have to find some way to wall off the credit swap derivatives

[Phoebe Loosinhouse]

from the rest of the system. I have been reading article after article and even the people who created them don't understand them, can't explain them, the IRS doesn't know how to value them, they are unregulated, I have seen them called part of the Shadow Banking system, etc. They have their own index, they can be sold in baskets, OMG IT IS JUST FRIGGEN INSANE!!!

(The derivatives are the swaps bought and sold by people who weren't actually trying to insure bonds they actually owned - the derivatives are the third party speculators, or the people placing bets on the side)

These things are the illusion of an illusion and they are bigger, broader and scarier than just sub-prime CDO and mortgage backed securities. These are the things that Warren Buffett called weapons of mass financial destruction. The companies that indulged themselves in the purchase and sale of the derivative instruments need to have a big conference and decide among themselves how to handle the fake scrip, non-collateralized crap they have traded back and forth. It needs to be done off the books, because the devaluation of this crap is the real threat to the banks and the entire system.

[flamingdem]

1. How do those impact prime mortgages?

Their originators should not be totally bailed out, they made billions with that instrument. Why not let those hedge funds and even banks dissolve? Many solid institutions did not play around with that -- or at least that is what my bank, Schwab and Fidelity claim!

[shraby]

2. As far as I can determine, they are all

just funny paper with no hard assets behind them. If they were all flushed down the toilet right now, the only harm would be to the company's bottom line that hold them, because they just made the whole shit up.

[Robbien]

3. We the People now are 80% owners of a good deal of these swaps

By buying up 80% ownership of AIG, we are the proud owner of one of the largest swap derivatives holders. In this new $700B bailout, swaps are also on the table.

And yes swap derivatives are, as you say, frigging insane.

Paulson has already decided how to handle swaps, offload them onto the American taxpayer.

[Old and In the Way]

4. I've read this stuff is valued at upwards of $60 trillion dollars.

The investment bankers have lived royally off trading this bogus paper....let them eat it.

[Phoebe Loosinhouse]

7. I am objecting to the attempt to bail out Monopoly dollars with real dollars.

Number one, it isn't possible.

I really think this class of "assets" has to be put aside and looked at and dealt with radically and differently.

Perhaps a separate exchange could be created specifically for the unwinding of these intruments and then also ban them, They are a financial vortex.

[Phoebe Loosinhouse]

5. More

http://www.globalresearch.ca/index.php?context=va&aid=8634

Credit Default Swaps: Evolving Financial Meltdown and Derivative Disaster Du Jour
by Dr. Ellen Brown

Stearns was the twelfth largest counterparty to credit default swap trades in 2006.1 These players have been major protection sellers in a massive web of credit default swaps, and when the “protection” goes, the whole fragile derivative pyramid will go with it. The collapse of the derivative monster thus appears to be both imminent and inevitable, but that fact need not be cause for despair. The $681 trillion derivatives trade is the last supersized bubble in a 300-year Ponzi scheme, one that has now taken over the entire monetary system. The nation's wealth has been drained into private vaults, leaving scarcity in its wake. It is a corrupt system, and change is long overdue. Major crises are major opportunities for change.


http://www.bloomberg.com/apps/news?pid=20601109&sid=aCFGw7GYxY14
Hedge Funds in Swaps Face Peril With Rising Junk Bond Defaults
By David Evans

Credit-default swaps are derivatives, meaning they're financial contracts that don't contain any actual assets. Their value is based on the worth of underlying loans and bonds. Swaps are similar to insurance policies -- with two key differences.

Unlike with traditional insurance, no agency monitors the seller of a swap contract to be certain it has the money to cover debt defaults. In addition, swap buyers don't need to actually own the asset they want to protect.

It's as if many investors could buy insurance on the same multimillion-dollar home they didn't own and then collect on its full value if the house burned down.

Money statement:

It's as if many investors could buy insurance on the same multi-million dollar home they didn't own and then collect on it's full value if the house burned down.

What this whole horrible mess brings out to me, is that the entire capitalist/corporate/credit/finance call it what you want market has moved entirely outside the real world of products, goods, services, debt, collateral to a world where they

MAKE BETS ON POSSIBLE OUTCOMES and think that is a sound basis for the entire world markets. THEY ARE INSANE! Their greed has driven them to insanity. And we are insane to trust them with any money whatsoever.

[PerfectSage]

6. They made highly leveraged bets using mostly borrowed money.

The end result is a debt bubble that's popping.