China Will Allow Credit Default Swaps, As Long As They Are Not Naked → Washingtons Blog
China Will Allow Credit Default Swaps, As Long As They Are Not Naked - Washingtons Blog

Wednesday, September 15, 2010

China Will Allow Credit Default Swaps, As Long As They Are Not Naked

I have repeatedly argued that naked credit default swaps should be banned.

"Naked credit default swaps" is the term coined to describe the situation where the buyer is not the referenced entity.

The American government hasn't banned naked CDS. Instead, the government let the largest CDS traders write impotent laws which won't fundamentally change the ongoing danger from derivatives.

But the Chinese are being smarter.

As Bloomberg notes:

China will introduce credit-default swaps by the end of this year, according to Shi Wenchao, secretary general of the state-backed National Association of Financial Market Institutional Investors.

Investors in the derivatives will be required to own the underlying risk, Shi said today in an interview with reporters in New York. China plans to limit the amount of leverage used in the contracts to avoid the kind of financial crisis faced in the U.S. two years ago, he said.

In other words, China will allow CDS, but will prohibit naked CDS.

Such a move shows - once again - that China is being much more realistic about the dangers of derivatives than the U.S. See this, this and this.


  1. "I have repeatedly argued that naked credit default swaps should be banned." -GW

    AND -I have repeated shown all credit devices are categorically immoral.

    These credit devices are tantamount to a theft from the potential of future humanity. This is the future being placed on a gaming table for liars, swindlers and gamblers to cheat at.

    Anyone who supports this sort of economy is an immoral scoundrel -or- simply ignorant of what is happening, -regardless their being in possession of an advanced degree in the witchcraft-like science of economics.

    To argue that the Chinese are being smarter for ONLY allowing non-naked credit default swaps, -in my moral book- is like arguing it is smarter only to go halfway toward realigning the priorities of humanity away from the debacle of the popular political calls for endless growth -based on this rapacious credit model that is the source of so many of our ongoing societal problems.

    The much-larger-than-just-economic Chinese model is exactly where endless growth is taking all of us.

    If the Chinese seem more intelligent to anyone in the West, it is only -so- because they have to work that much harder to grub out a debased existence living in their far more debased, degraded and over-populated local surroundings.

    When North America has a similar population in the-not-too-distant-future-if-we-continue-down-this-path, the people living here will seem more intelligent too, because they will have to run around that much faster and work that much harder -JUST TO SURVIVE.

    Who wants THAT???

    The ongoing collapse should teach us something.

    That "something" should NOT be -to walk more slowly back up to the same crooked-gaming-table and lay down all the family jewels -only to have them all stolen once more.

    In the story of Jack and the Beanstalk, -Jack traded the family cow for some magic beans.

    In reality, the Chinese are tentatively following OUR model, as they too are now trading the family cow for some magic beans.

    WHERE IS IT anyone thinks this MAGIC-BEAN = CREDIT-ECONOMY story will end up for either the Chinese or North America?

  2. ha ha

    all praise the great Chinese wisdom. their credit default swaps will be about as pure and regulated as their milk, toy paint, and everything else coming out of their undemocratic, closed press society.

    look, guys. if the USA were china, most of the popular financial bloggers like yves smith and tyler durden would be in jail . if you dont belive me, google this guy:

    'zhao lianhai'.


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