Wednesday, December 10, 2008

Felix, meet Arnold

Felix Salmon has been doing a great job with his spotlight on credit derivatives swaps.

Arnold seems to one-up, though:
Salmon says that credit default swaps have "other uses" than price discovery. Those other uses seem to me to consist primarily of creating systemic risk and huge swings in liquidity preference in response to revaluation of out-of-the-money put options.

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