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The truth about the CDS market

By Anonymous

I'm not wild about Peter Wallison's piece, "Everything You Wanted to Know about Credit Default Swaps?but Were Never Told." I may write a separate post on Wallison's piece. But for now, if you want to know the truth about the CDS market, read these two pieces by Satyajit Das:

Surreal Realities of the CDS Markets - Part 1

Surreal Realities of the CDS Markets - Part 2

Das' views on the CDS market closely mirror my own. Namely, that CDS haven't been a major contributor to the financial crisis, but that there are still plenty of problems with the CDS market. The days of collegially hashing out problems with CDS in a Cravath conference room are long gone.

Das' articles are critical of the CDS market overall, but the key sentence comes near the beginning of the first article:

It remains to be seen whether [CDS] emerge as instruments of risk reduction or risk creators.

There's a very long list of problems in the CDS market now; but saying that there are lots of problems with CDS isn't the same as saying that the CDS market caused, or was a major contributor to, the financial crisis.

Full post as published by Economics of Contempt on January 27, 2009 (boomark / email).