It's (1). They're not call liabilities in general. There are some people trying to play a game called "commutation" (basically, settling CDS contracts in cash today for less than they're worth, because you think that the insurer is insolvent in the long term) but this can only happen with the consent of both parties.
best dd > ----- Original Message ----- > From: "Max Sawicky" <[email protected]> > To: "Progressive Economics" <[email protected]> > Subject: Re: [Pen-l] Query: Credit default swaps: what stops a "run on the > bank"? > Date: Fri, 13 Mar 2009 14:07:23 -0400 > > > I know nothing about CDS's, but in general when you have a lot of a > certain asset that you think is shaky, the act of trying to unload it > can cause its value to drop even further. So you take a possibly > bigger bath selling than holding. Similar to the adage, when you owe > somebody $100 you have a creditor. When you owe them a million, you > have a partner. > > > On Fri, Mar 13, 2009 at 1:28 PM, Gar Lipow <[email protected]> wrote: > > >From what I understand there are 40 trillion dollars in credit default > > swaps out there, 20 trillion of which are callable against AIG. U.S. > > 2008 GDP was around 14 trillion. So what has prevented a "run on the > > bank"? What has kept all of them from being called? > > > > I'm guessing it has to be some combination of the following > > > > 1) Not all of them have had the conditions under which they can be > > called met, and some of the one that could be called are against > > assets in good enough shape that the asset holder prefers the asset to > > the exercising the option. > > > > 2) The CDSs are concentrated in few enough hands to exercise > > discretion in calling them - the way a bank with only one depositor > > might be able to avoid a run. > > > > Anyone out there willing to explain this? > > _______________________________________________ > > pen-l mailing list > > [email protected] > > https://lists.csuchico.edu/mailman/listinfo/pen-l > > > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l > _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
