Tuesday, July 8, 2008
Credit Default Swap Accounting
Yves Smith has a post worth reading at Naked Capitalism, www.nakedcapitalism.com/2008/07/unintended-consequences-of-new.html, 6 July 2008, concerning credit default swap (CDS) accounting. CDSs are another financial product that doesn't make sense to me. Why hold a company's debt and buy a CDS on it? If you want to buy "riskless" assets, buy Treasury paper. Excepting counterparty default risk, I don't see why holding debt and buying related CDSs should yield any more than holding Treasury paper. I can see writing "naked" CDSs, that is a pure "gamble".