We're Number Three!

70+ trillion? Great! So regarding the story this AM on Morning Edition: I assume the host is given the questions to ask... well how have him ask which other institutions are at risk of further infection of the CDS market? How does it all unwind in an orderly fashion at this point? 70 trillion is not entirely AIG, so where do the remaining risks reside?

Sent by phil | 9:44 AM | 9-18-2008

Doesn't this CDS stuff continue until there is transparency and everybody know how much bad debt each institution has?

Sent by phil | 9:48 AM | 9-18-2008

I just wanted to mention that it is wonderful to hear Laura Conaway and Mike Pesca again.

Very enjoyable podcast.

Sent by Stephanie | 12:37 PM | 9-18-2008

This is a great podcast. I have tried watching the cable business news station (who will remain nameless) for the last three days. The mind-numbing graphics and the shouting (they had 7 talking heads on at one time on Tuesday!) led me back to good ole radio. Excellent job! I will be sending twice my normal amount for the pledge drive this week.

Sent by Robin Murray | 1:52 PM | 9-18-2008

Phil,

I think you're right. There needs to be more transparency or this stuff will fester. I think.

AIG was around $400 billion of the $70 trillion of assets covered by CDS. But most of the other players had counter-positions. They sold CDS protection and they bought CDS protection at the same time. They'd bet on both sides, in effect. So, very few have huge one-way exposure. If they lose money on the CDS they sold, they get it back on the CDS they bought.

AIG only sold. They didn't buy (as far as we know). So, they would just lose, lose, lose.

That's why their $400 billion is different from everyone else's $70 trillion.

Although my understanding is that there still is somewhere around $3 trillion in one-way exposure out there in the system. That's no joke. That's, what, 7 AIGs? At least it's not the full 70.

Sent by Adam Davidson | 3:20 AM | 9-19-2008