New York Fed Seeks Credit Default Swap Market
The New York branch of the Federal Reserve will hold a meeting tomorrow about setting up a clearinghouse or market to trade credit default swaps:
The Fed will hold a meeting with “a small number of banks and buy-side firms” to discuss progress being made on creating a central counterparty, said a New York Fed spokesman who declined to be identified.
New York Fed President Timothy Geithner has stepped up pressure to create a central counterparty since the near-collapse of Bear Stearns Cos. in March raised concern the market could fail if a major market-maker couldn’t make good on its trades. The bankruptcy last month of Lehman Brothers Holdings Inc., among the top 10 counterparties to credit swap trades, intensified concern that market stability is in jeopardy amid the worst financial crisis since the Great Depression.
The Clearing Corp., a Chicago clearinghouse owned by some of the biggest credit-default swap market-makers, has faced delays in setting up a system for guaranteeing trades as the Fed pushed it to obtain a banking license that would place it under the central bank’s watch.
Right now, credit default swaps aren’t traded on markets like stocks and bonds are, yet it’s a huge market. Instead, all it takes is a phone call or instant message to negotiate the terms or make a trade. It’s wild stuff that probably took down AIG. Credit default swaps also are making bankruptcy proceedings of Lehman Brothers more complicated.
“Fed, Dealers to Meet on Default Swaps Clearinghouse”
Do you have a Private mortgage insurance (PMI) policy? If you do your PMI insurer has passed along their risk by buying a credit default swaps (CDS) to protect them in the event you have your home that your home is taken away from you. CDS and PMI are the same thing. Make people wanting to buy a home put at least 20% down if you don’t like them. nomedals.blogspot.com