Comments on: Large bank loses $7.9 billion: CDS involved http://www.creditwritedowns.com/2009/07/large-bank-loses-7-9-billion-cds-involved.html Finance, Economics and Markets Fri, 10 Feb 2012 00:37:00 +0000 hourly 1 By: Terry http://www.creditwritedowns.com/2009/07/large-bank-loses-7-9-billion-cds-involved.html#comment-56775 Terry Mon, 20 Jul 2009 14:39:00 +0000 http://www.creditwritedowns.com/2009/07/large-bank-loses-7-9-billion-cds-involved.html#comment-56775 Hmmm, so it seems that when a small investor (or even a large one) buys a "naked short" in the stock market, that is "a bad thing" because its a wager that stock prices will go down, no up. OTOH, when major corporations buy a CDS, essentially a massive "naked short" that the object company will go bankrupt, that's "a good thing" because it's insurance against default. So it's all right for corporations to protect themselves, but it's not all right for individuals to do so. I think there may be a policy/regulatory implication in there somewhere, hopefully one that offers some consistency for investors of all sizes. Hmmm, so it seems that when a small investor (or even a large one) buys a “naked short” in the stock market, that is “a bad thing” because its a wager that stock prices will go down, no up. OTOH, when major corporations buy a CDS, essentially a massive “naked short” that the object company will go bankrupt, that’s “a good thing” because it’s insurance against default.

So it’s all right for corporations to protect themselves, but it’s not all right for individuals to do so.

I think there may be a policy/regulatory implication in there somewhere, hopefully one that offers some consistency for investors of all sizes.

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