Re: [Pen-l] Query: Credit default swaps: what stops a "run on the bank"?

[Gar Lipow <gar.lipow@xxxxxxxxx>]

On Sun, Mar 22, 2009 at 5:25 AM,  <dsquared@xxxxxxxxxxxxxxxx> wrote:
> It's (1).  They're not call liabilities in general.  There are some people trying to play a game called "commutation" (basically, settling CDS contracts in cash today for less than they're worth, because you think that the insurer is insolvent in the long term) but this can only happen with the consent of both parties.
>
> best
> dd

Thank you very much. Can you explain a little further? Don't they
become "call" liabilities of the the condition they are guarding
against happens. That is, if you have a CDS against a mortgage fund,
if enough of the mortages go into default, don't they then become a
"call" commodity? Like a life insurance policy becomes a "call"
commodity if the insured person dies? Is it a matter of the conditions
have not been met? Or is a CDS not that kind insurance? I know they
were used as short bets as well as protection, but taking the
protection example as simplest, how does one use a CDS to hedge
against an investment going bad if it is not callable? Please note: I
am NOT arguing. I am asking to have my ignorance corrected.  I'll bet
I am not the only one on this list who needs this point explained.
Given your background, you may be the perfect person to answer this,
if you are willing.
_______________________________________________
pen-l mailing list
pen-l@xxxxxxxxxxxxxxxxxx
https://lists.csuchico.edu/mailman/listinfo/pen-l