Irresponsible Suggestions Need Not Apply

The Wall Street Journals Online RealTime Economics Blog is running this story.

blogs.wsj.com/economics/2009/08/21/should-the-fed-get-into-the-cds-business/

We have two MIT Economists, Ricardo Caballero and Pablo Kurlat who basically state that the FED should get into the CDS Business. This has to be the most absurd, ludicrous, and downright irresponsible piece of filth I have heard since the start of the credit crisis.

Earth to MIT Economists! The CDS business is the Number 1 reason why we have a credit crisis in the first place. The very reason we had to bailout Fannie, Freddie, and AIG was because the CDS business is really not a business. The reason Lehman went into bankruptcy was because people bought CDS protection against Lehman default, then the same people hammered the stock on the short side. I know this because I was hammering Lehman on the short side! It was the easiest trade in the history of the stock market.

There is absolutely zero economic benefit from creating 1 CDS contract! Zero! Its financial engineering at its atrocious worst! There is no value created, no insurance benefit, its only there so that Wall Street Traders (Like Me) can get insanely rich!

tradersutra.blogspot.com/2009/03/aig-quants.html

tradersutra.blogspot.com/2009/07/requim-for-aig-props-for-goldman.html"

What should happen is an orderly unwinding of these financial weapons of mass destruction.

tradersutra.blogspot.com/2009/06/orderly-unwinding.html"

tradersutra.blogspot.com/2009/04/what-needs-to-happen-now.html"

Whats even worse is the idea that the FED should get into the CDS Business? Preposterous!

These guys wouldn't know risk if it bit them in the ass. The traders at the FED are in now way sophisticated enough to handle this delicate issue.

The MIT professors ideas are stupid, baseless, not researched well, and bottom line show any lack of living in reality.

"Insurance is an effective and cheap tool during a panic". WRONG! Real Insurance is effective but is very expensive during a panic. Try to go out and get hurricane insurance for your home in the middle of Katrina. CDS/Financial Insurance is not based off of financial health, its based off of future liabilities and implied volatility.

Lets forget for the moment that CDS contracts should be outlawed, not regulated, why would you want the FED in this business trying to hedge the economy? Remember there is always a counter party for any CDS contract. Who would be on the other side of the FED's bets? Al-Queda? Hamas? Hezbollah?
What would stop someone from selling CDS insurance to the FED, then bombing us later? You in fact have the FED on the other side of complex transactions. We need to get rid of complex derivatives, not expand their use.

This is a recipe for total disaster. What makes you believe that the simpletons at the FED are anymore smarter or dumber then the guys at AIG? Just because you come from MIT, Harvard, Caltech, and or Stanford, doesn't make you less geared to make mistakes! It was these same guys from these "prestigious" schools that created the flawed models that AIG used to muck up the economy!