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So basically what you're saying is that swaps under these new rules are good as they go south quicker and more obviously in changing market conditions, which fo
by a-dub 11y ago
So basically what you're saying is that swaps under these new rules are good as they go south quicker and more obviously in changing market conditions, which forces the hand of the holder to plan ahead and actively hedge their bets elsewhere in real time rather than relying on the long term false security of something that might be rotten underneath?
- vegabook 11y agoWell, swaps will not move south any faster or slower than treasuries, usually, but the former will be a leveraged instrument so will tend to force the holder's hand to close much more quickly. Generally I did not intend my post to exonerate swaps as a dangerous instrument. They are. Just to say that they cannot be equated with outright debt.
- pjmorris 11y agoNice explanation in the above post... the kind John Merriwether (LTCM) might have given in 1997 or Dick Fuld (Lehman) might have given in 2007. You're certainly right in that there's less than 70T in leverage involved in the swaps, but I think you're also right to call them dangerous.