2008-08-26 — bloomberg.com
Buyers of credit-default swap contracts that protect against losses on Fannie Mae or Freddie Mac subordinated debt may not get paid immediately if the mortgage-finance companies were to defer interest payments as part of a government bailout, according to Bank of America Corp.
A capital injection by the government, on its own, isn't likely to trigger credit-default swaps, he wrote.
``Such an injection would effectively make the government an owner of the agencies, without taking control of day-to-day operations,'' Taksler wrote. ``But, to be clear, an actual opinion would depend on all the information available at the time of a potential event.''
So this just flips the script around (maybe?)... instead of those who sold credit default swap protection on Fannie and Freddie hurting, those who bought it will be. Gotta wonder where the buyers and sellers are distributed, throughout the financial system.
It's times like this we are reminded the sheer complexity of the financial system is itself a problem.
Comments: Be the first to add a comment
Note: Comments may take a few minutes to show up on this page. If you go to the forum thread, however, you can see them immediately.