Why Blaming CDS For The Sovereign Risk Flare Is Idiotic, And Why Gold Is Now A Global Fiat-Currency Alternative
The ever so handsome Tim Backshall of Credit Derivatives Research explains to all rabid anti-CDSites why CDS is the last thing one has to worry about in the spreading sovereign crisis, and why looking at 10% budget deficits (just like Lehman's $50 billion underwater balance sheet was responsible for the firm's bankruptcy, instead of unfounded speculation that naked shorting was the cause) may be the actual reason why half of Europe will soon have to be bailed out. CDS are merely instruments to express a view. And if Joe Cassano found a job somewhere where he is the party responsible for selling tens of billions in gross sovereign notional, then so be it. That said, bailing out the seller of Greek, or any other nation's, protection will hopefully not become an issue all too soon. Alas, the rumor that this seller may be Goldman Sachs (that BS about Greek banks selling Greek CDS causes 5 minute bouts of hypoxia-inducing guffawing in every CDS trader in the business) may mean that one year from now, when AIG is long forgotten (and defunct), we will be discussing why the Fed bailed out Goldman's Greek exposure at 100 cents on the dollar. Lastly, another point by Backshall - don't sell your gold. Should a full blown fiat contagion take hold, the dollar may go higher, but gold, which can not be printed in the mad dash to prop up the Titanic in its final minutes, will surely not go lower.