Shorting America Rocks!
Lower credit risk means a lower price for protection. Zero implies zero risk. The higher the basis points, the higher the implied risk. When U.S. credit default swaps were first introduced, the price of protection was around two basis points. According to Bloomberg, the price for five-year protection was around 38 basis points (per annum) on Friday. But the price in the over-the-counter market — where this stuff actually trades — was almost double or around 75 basis points.
Since most traders in U.S. credit default swaps don't think the U.S. will default any time soon, why are they trading U.S. credit default swaps? They are speculating on price movements the way a day trader buys and sells stocks to speculate on stock price movements.
Another Janet Tavakoli piece, this one about the market for CDS on the United States.
I'd like someone to explain to me how trading a credit default swap on a U.S. Treasury note isn't gambling. This is purely betting on crowd behavior — after all, nobody really thinks the U.S. will default.
It's weird enough living in a country where a man can legally own an arsenal of machine guns, but his neighbor growing a pot plant will send a team of DEA agents kicking his door in with a no-knock warrant. But this goes even beyond that. If I go online today to HaveNoLifeAndBetOnSports.com and bet fifty dollars on the Bucks against the Celtics tonight, I'm a criminal. But some gazillionaire firm in New York can legally bet against the United States of America in unlimited amounts in a trade that has nothing to do with anything, but a guess about how many other people will make the same bet.
Jesus, are we a weird country.
Around the Web
Around the Web
Men's Journal10 Sex Positions That Will Get Her Off Every Time
Cracked22 Movies That Made Huge Mistakes You Completely Missed
Mental Floss10 People Banned From SNL
Salon10 Famous Geniuses And Their Drugs Of Choice
MTV News6 Cringe-Worthy VMA Moments We’ll Never Forget
Men's Journal9 Traits That Attract Women
- Dez Bryant: The Survivor
- Donald Trump Just Stopped Being Funny
- Watch Taylor Swift Sing 'Smelly Cat' With Lisa Kudrow at L.A. Show
- N.W.A: American Gangstas
- Miley Cyrus Slams Nicki Minaj Over VMAs Snub Reaction
- The Rise and Fall of a Bitcoin Kingpin
- Watch Amy Schumer, Jennifer Lawrence Dance Atop Billy Joel's Piano
- Motorhead's Lemmy: My Life in 15 Snarls