3 ms·
The treasury selling CDS on its own debt makes no sense, because the credit-worthiness of your insurer is completely correlated to the underlying credit. So pe
by mdda 15y ago
The treasury selling CDS on its own debt makes no sense, because the credit-worthiness of your insurer is completely correlated to the underlying credit. So people would pay zero for the credit protection.
Quite why people away from the financial markets assume that those that are are going to fall for something so obvious is a mystery to me. And if you think that the housing crisis is a counterexample, I should point out that people over-leveraging themselves to invest in property at ever-increasing prices was common wisdom back in 2005.
- _delirium 15y agoHmm true, but I believe the Fed would be the buyer in this case, not the open market. The government would be selling its own instruments to a quasi-governmental entity, like BoA writing a CDS and selling it to a BoA subsidiary.