I’m not sure how much you’ve looked into this, but I was reading over some market analysis info the other day, and one of the signals provided that the private sector expects things to get worse was that the contract prices of CDS’s were rising.

This was a concern of mine back in September when the government finally decided it had to do “something” to deal with the banking crisis. Namely that before any bailout/recapitalization/asset-buyouts happened we needed to immediately regulate the shadow banking industry, because there would be nothing to stop these corporations from taking tax-payer money to simply continue their current practices.

The only apparent source of CDS index info I can track down is part of the Bloomberg Professional™ service, which I don’t currently have access to. Perhaps you do, or know someone who does, but it might make for some interesting research to look at the pricing, spread, and volume trends over the last year, and projections into the next quarter.

I’m beginning to half wonder if the reason all our tax money isn’t being loaned back to us is in part because these institutions might believe they can enter into more of these contracts to try and cover their vulnerability on their existing contracts, and perhaps our tax money is financing it.

The last refuge of the gambler, to desperately try to leverage new bets to cover old ones.

TeaLeaves, who knows where and to whom the money is going. We only know where it is coming from. US. If the Government gives a lot of money to the banks, then I guess they are doing well.

I was only saying that in a deal where the mortgage is recalculated to a lower amount, but the loan is changed from one ”without recourse” where the borrower can only lose the house and such equity he has in it to one that might be a lower amount of money but that has ”with recourse” in it, then the borrower is much worse off if the property still continues to decline in value. Here the lender is much better off for he can go after the borrowers future earnings, and other assets.

That is what has been suggested by many as a solution, and an ”inducement” to the lender to recalculate the loan for the new one has more built in protection for the lender. Plus of course the government might give the bank say about 1/2 the initial loss.

My point is that a very important objective is to keep the borrowers from being strangled in the future by new loans they can’t just walk away from.

Now if the new loan is like the old loan ”without recourse” then the borrower is in fair shape for he can still move away.

Even there though the borrower still has the risk of losing any new equity he puts into the house if things go South.

The ”with recourse” loans are not a gamble for the borrower, they are more like quicksand, like playing against a marked deck of cards.

For CDS’s and CDOs, I would probably force rewrites all contacts where the math indicated unrealistic assumptions about probability (non clustering defaults) or events (bubble forevah!_

aka: Mortgage holders strike.