Anybody on wall street “seething” at this for any reason other than “why didn’t I think of that earlier” is not fit for wall street!!!
CDS’s are part of the “free markets” rejection of regulation, the contention has always been that free markets are self regulating, nobody is saying what the nature of the self-regulation will be. One critical process that markets rely on for self regulation is arbitrage, arbitrage opportunities are market imperfections, people who step in and trade that opportunity are the critical force that trades the arbitrage away and brings the market to steady state again. These agents are automatically rewarded in the process for this crucial contribution!
Thus in this case, the craziness with CDS’s is actually the market imperfection. The fact is we did not have enough smart operators like amherst step in early enough to plug the hole. If wall street had been smart about spotting the arbitrage opportunity as they should have been, these trades should have happened at the start of the decline quickly till the market had stabilized to an appropriate level of CDS play, also one trade for a few million is too small.
So, from a pure free market standpoint, I’m “seething” that this did not happen enough and early enough! That is the failure of the market.
CDS’s are part of the “free markets” rejection of regulation, the contention has always been that free markets are self regulating, nobody is saying what the nature of the self-regulation will be. One critical process that markets rely on for self regulation is arbitrage, arbitrage opportunities are market imperfections, people who step in and trade that opportunity are the critical force that trades the arbitrage away and brings the market to steady state again. These agents are automatically rewarded in the process for this crucial contribution!
Thus in this case, the craziness with CDS’s is actually the market imperfection. The fact is we did not have enough smart operators like amherst step in early enough to plug the hole. If wall street had been smart about spotting the arbitrage opportunity as they should have been, these trades should have happened at the start of the decline quickly till the market had stabilized to an appropriate level of CDS play, also one trade for a few million is too small.
So, from a pure free market standpoint, I’m “seething” that this did not happen enough and early enough! That is the failure of the market.
