Fed, 17 Banks Agree on Credit-Default Swaps Changes (Update1)

Source: Bloomberg

June 9 (Bloomberg) -- Regulators and 17 banks that handle about 90 percent of the trading in credit-default swaps agreed to changes aimed at easing the risk of a collapse of the $62 trillion market, the Federal Reserve Bank of New York said.

Morgan Stanley, Deutsche Bank AG and Goldman Sachs Group Inc. are among the banks creating a system to move trades through a clearinghouse that would absorb a failure by one of the market- makers, the New York Fed said today in a statement following a meeting with the firms.

The central counterparty, more automated trading and settlement and other fixes ``will help improve the system's ability to manage the consequence of failure by a major institution, and we expect to make meaningful progress over the next six months,'' New York Fed President Timothy Geithner said in a speech to the Economic Club of New York.

Concerns that the market could fail erupted in March when Bear Stearns Cos., then the fifth-biggest U.S. securities firm, faced a cash squeeze. The central bank agreed to back an emergency sale of Bear to JPMorgan Chase & Co. in part because of the systemic losses that would have resulted if the firm had filed for bankruptcy, Geithner said today.



Read more: http://www.bloomberg.com/apps/news?pid=20601087&sid=aAgeJdBXht6Q&refer=home

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The 62 trillion dollar market? WOW. Now we know how to pay the debt off. All we have to do is NATIONALIZE the BANKS!

I think what it means is that is the total amount insured. But the fact that our financial system is groping for ever more exotic ways to turn a profit, and that it's based on such complex products that even the players can't understand, means to me that we've reached the end of the line.

The system is maxed out, big time, and they're shuffling the deck chairs of the Titanic for as long as possible.

62 TRILLION dollars?
The US economy generates how much revenue each year?
6 trillion?
So they're actively making that private debt public as fast as they can...
I say dissolve the Fed and start again, but the effect might be the same: Making private debt payable by taxpayers.
I refuse that debt, let them go broke...

Bruce

bet there would be a shitload less risky bullshit going on then.

Total US GDP is $14.196 trillion. The last figure I saw about global GDP is $48trillion. So there is 1.5 times the debt relative to the global economy in one year. The Federal Reserve cannot print their way to solvency should this market collapse.

Who in their right mind has any business underwriting this much debt?

Small changes in the underlying debt can be catostrophic to the derivatives sitting on top (futures & swaps). The biggest of these are the credit-default swaps protecting CDO's and Corporate Debt. Bond insurers, who issue credit-default swaps, have just been stripped of their AAA status by Moody's. The fun has only begun...