ban deriviatives already...

http://seekingalpha.com/article/141796-bookstaber-derivatives-are-the-weapon-of-choice

*

Avoid taxes. For example, investors use total return swaps to take positions in UK stocks in order to avoid transactions taxes.
*

Take exposures that are not permitted in a particular investment charter. For example, index amortizing swaps were used by insurance companies to take mortgage risk.
*

Speculate. For example, the main use of credit default swaps is to allow traders to take short positions on corporate bonds and place bets on the failure of a company.
*

Hide risk-taking activity. For example, derivatives provide a means for obtaining a leveraged position without explicit financing or capital outlay and for taking risk off-balance sheet, where it is not as readily observed and monitored. Derivatives also can be used to structure complex risk-return tradeoffs that are difficult to dissect.

http://bookstaber.com/rick/SenateBankingCommitteeTestimony.pdf
http://bookstaber.com/rick/HouseFSCtestimony.pdf

Anyone remember The Lorax? Dr Seuss

http://www.thenervousbreakdown.com/dcorrigan/2009/01/the-bookstabber/

who's at fault..the gun or the person that uses the gun? CDS and other derivatives add liquididty and price discovery to capital markets which would otherwise not be there. CDS at some point may actually replace rating agencies.

DS and other derivatives add liquididty and price discovery to capital markets
Anecdotal evidence clearly does not support this. Reported bond prices can just as easily serve this purpose and algorithms can strip out the effect of coupon. It's all about regulatory arbitrage and operating in an opaque environment. Just a variation of bucket shop trading( http://en.wikipedia.org/wiki/Bucket_shop_(stock_market) )

1 ) CDS does not aide in capital formation
1a)) It's illiegal for me to buy a life insurance policy on a total stranger, why is
it ok for me to do this on your house via CDS?
2) CDS offers asymetric risk profile

AIG thought it was selling insurance on bonds and as such CDS were outrageously overpriced. In fact AIG was selling bear market warrants and it severely underestimated their value," Soros said.

At this point, the phenomenon that Soros describes as reflexivity kicked in. That is to say, the mispricing of financial instruments -- in this case, CDS -- affected the fundamentals that the prices were supposed to reflect.

CDS at some point may actually replace rating agencies.

I find this statement flawed. Credit analysis is done by buyer and/or seller on a bond to get a handle on pricing. The same analysis would need to occur by the writer or seller of a cds on the underlying instrument. To state that CDS price can replace the credit analysis doesn't make sense.

CDS gives you the true market opinion on a credit. CDS reacts real time to changes in credit.

CDS gives you the true market opinion on a credit. CDS reacts real time to changes in credit.

Fine, put them on an organized exchange and regulate them like wheat futures with margin requirements and strict position limits. Of course the big banks will go on life support if they had to earn "normal" returns on this product..

you dont need an exchange to regulate. the CDS market is already in the process of becoming more regulated. Margin requirements are already in place. Lessons have been learned from AIG. actual exchange floor trading is inefficient compared to OTC trading. there is greater liquidity OTC

actual exchange floor trading is inefficient

who said anything about floor trading? electronic exchanges are fine. No reason to make CDS a club of the big banks. With an electronic exchange you have the most efficient pricing(tight bid/ask) and prices can be reported. Elevating a bunch of dealers and giving them an unfair advantage in offering and pricing CDS makes no sense. Just becomes a tax on the rest of the economy via inefficient pricing.

http://www.bloomberg.com/apps/news?pid=20601087&sid=afbrYcHrmvRs&refer=home

http://us1.institutionalriskanalytics.com/pub/IRAstory.asp?tag=365

Simply stated, the�supra-normal returns paid to the dealers in the�CDS market is a tax. Like most state lotteries, the deliberate inefficiency of the CDS market is a dedicated�subsidy�meant to benefit one class of financial institutions, namely the large dealer banks, at the expense of other market participants. Every investor in the markets pay the CDS tax�via wider spreads and the taxpayers in the industrial nations pay due to periodic losses to the system caused by the AIGs of the world. And for every large, overt failure like AIG, there are dozens of lesser losses from OTC derivatives buried by the professional managers of funds and financial institutions in the same way that gamblers hide their bad bets.

this is how all markest evolve. It wasnt too long ago that the specialists on the floor of the NYSE were robbing people left and right. as the CDS market grows, spreads will tighten. But regardless, if one wants or needs to take a large postition, there will be costs involved.

like the tail wagging the dog.....

http://graphics8.nytimes.com/images/2008/02/17/business/17SWAP_2_lg.gif

f one wants or needs to take a large postition,
there's something wrong when a lender can hedge 300% of his risk in g.m. debt. Does he have an economic incentive not to see the company reorganize? You Bet! How come I'm not allowed to insure 500% of the value of my car, house or business?

Another point on the graph. It truly boggles the mind why an instrument of such noble purpose( if that can be said of hedging and price discovery) exceeds in notional value by leaps and bounds the underlying face amount of it's reference securities. CDS does not mitigate risk, it magnifies it.

true all of this--i will buy this book--dont agree with banning--should be rendered sufficiently generic to be centrally cleared and regulated--like cftc reg'ed future and options--their OTC status is what provided for the evolution of sleaze

with all the defaults as of late, at least some bondholders arent being wiped out and thats because of CDS. when the govt turns the tables upside down and runs over senior creditors, the CDS market works properly. more notional than bonds just creates more liquidity. becuase corp bonds are so thin, cds allows more participants to gain exposure they would have never been able to have. wheteher long or short.

when the govt turns the tables upside down and runs over senior creditors, the CDS market works properly

With AIG the American Tax Payer paid off the bets when the house could not.
Bond holders in G.M. & Chrysler had more to gain from default than conversion to equity. Shouldn't the system be tilted towards companies being able to reorganize?

Parenthetically The current banking crises a solvency one wold be solved in a second if bond holders exchanged their debt for equity stakes.

The house(AIG) could have paid up, but that means aig goes bankrupt. cant have it both ways. they either pay up, or the banks put them into bankruptcy. GM and chrysler were very poorly run compnies which should have gone bankrupt long ago. why should bondholders be forced to take losses whne the company that borrowed the money has mismanaged themselves so poorly that they cant pay the money back?

people buy bonds because they dont want equity. thats the whole point.

Most derivatives are very plain vanilla, perfectly safe.

Every ETF, mutual fund, money market fund is, in fact, a type of derivative.

Want to ban them?

people buy bonds because they dont want equity. thats the whole point.

That is absurd and flies in the face of what a chapter 11 bankruptcy reorganization is intended to accomplish. Under this theory all bankrupt companies should liquidate and never re-emerge from bankruptcy.

The house(AIG) could have paid up
AIG could never have paid up. We should also be accurate though, AIG failed due to a margin call The legitimate parts were regulated and capital set aside to cover legitimate insurance products such as life, casualty D&O, etc. The old rules allowed them to monetize their AAA status and put up no collateral on underwritten contracts. They had no ability to post collateral.

As it stands now AIG is being unwound.

Every ETF, mutual fund, money market fund is, in fact, a type of derivative.

Want to ban them?

Clearly this thread is about CDS. I'm constantly amazed at the amateur attempts at creating a straw man argument.

derivatives volume

http://www.bis.org/statistics/otcder/dt1920a.pdf

Many derivatives are nothing more than getting around the system

1)Structured notes on MBS... Insurance company investing in MBS despite their charter
2)CDS on insurance company liability...reduce regulatory capital and negate with secret side letter
3)ETF's that allow 2,4 times short position...product designed to skirt posting margin

"Clearly this thread is about CDS"

Credit default swaps are not derivatives. They are insurance policies.

I'm constantly amazed at the amateur attempts at creating a straw man argument.

most firm that file,probably shouldnt re-emerge anyways.

Don't have much issue with plain vanilla interest rate and forex swaps provided they are
centrally cleared through an organized exchange. These products do assist in risk mitigation.

For some reason there's a tendency to abuse the word "innovation". Not all innovation is good. SIVs and ABS commercial paper was financial innovation. Didn't work out so good..

Clearly this thread is about CDS"

Credit default swaps are not derivatives. They are insurance policies.

The writers of these spent a great deal of money hiring lawyers arguing otherwise..

OK, I'll stick my two cents in here. marco_m and Riversider are BOTH WRONG. Derivative are not inherently bad things. There are many good reasons to use/trade derivatives. The primary use is to transfer risk. If you have a certain type of exposure to a risk, derivatives can help you 'dial out' that risk. Derivatives are here to stay and are very useful.

Derivatives should be traded on an exchange and should be heavily regulated and extremely transparent. Riverside points out that we can't take out life insurance on strangers...I'd respond...but we can buy puts on stocks. CDS are very similar to equity put options. Yes its more complicated, but that is the esaiest way to think of it.

Now we need to ask ourselves why are equity options so benign and fixed income/credit derivatives so dangerous? The answer is the transparency of their markets. Equity options are traded on an exchange (electronic or floor trading is irrelevant to my discusssion) and the volumes, open interest, and price levels are published in REAL TIME. OTC markets have now such information. In many cases there is more CDS outstanding than there is notional. That factors into liquidity and risk and pricing.

Finally, it is the lack of trading information which lead to tragically poor pricing of risk which lead to the implosion we are now experiencing.

The key function of derivatives is the transfer of risk.
If risk is not priced properly and EFFICIENTLY there will be large problems.
Transparancy of trading allows for full and efficient dissemination of pricing information.

Poor risk transferrence pricing lead to poor pricing of underlying structures. That poor pricing masked the gigantic imbalances in the market. Those imbalances were exposed and the disaster followed.

CDS are derivatives. they derive value from the percieved credit worthiness of a company as well as the performance of the underlying bonds

most firm that file,probably shouldnt re-emerge anyways.

Unsubstantiated and an opinion. Many companies do emerge from chapter 11 reorganization.

In a derivative the price is directly related to the value of the underlying instrument (ETF's). In a CDS that is a "perceived" value, not an actual value.

derivatives are for both hedging and taking outright positions. thier primary purpose is to make money. make no mistake about that. its all about PnL.

once a cds contarct is struck its intrinsic value is the pv the future cash flows for the life of the trade. the perceived credit quaoty of the underlying ref entity accounts for the mark to market differnce. extrinsic value.

stevejhx..."In a derivative the price is directly related to the value of the underlying instrument (ETF's). In a CDS that is a "perceived" value, not an actual value."

Wrong. When volatility component of an equity option increases, so does the value of that option. What you call perception, professionals call volatility. Nonetheless, without this type of real time pricing info, an efficient market is impossible.

marco_m ..."derivatives are for both hedging and taking outright positions. thier primary purpose is to make money. make no mistake about that. its all about PnL."

No doubt they are used by speculators to assume leveraged positions. Speculators are a positive and essential part of any efficient market. Their trades should be recorded and the pricing information disseminated like any other trade.

CDS are very similar to equity put options.

An put option contract that gives the holder the right to sell a certain quantity of an underlying security to the writer of the option, at a specified price (strike price) up to a specified date (expiration date).

I don't see it. CDS is more analogous to either bucket shop betting(pejorative) or insurance(approving).

I agree that CDS has risk mitigation potential, and controls can be put in place to ensure that is the case. It just hasn't worked out that way on a macro level.

"I agree that CDS has risk mitigation potential, and controls can be put in place to ensure that is the case. "

cool.

"It just hasn't worked out that way on a macro level."

Because, as I said, pricing and open interest information was not public. Few few realized how 'one sided' the trade was. As it happens AIG was, in many cases, that "one side" and when they fell, it was all over.

buy owning CDS you have the right to deliver bonds and be paid par in the even of default. exactly like a put option.

riversider..ur making an arguement against something that you dont fully understand.

AIG was very long and wrong

Acutally AIG was short the protection (CDS). (I guess you could put it another way by saying they were long the underlying)

Riversider, based on your definition everything is a derivative. Equity is a derivative because it's based on the value of a company. Insurance is a derivative because it is based on the risk of a fire.

CDS's have some features of a derivative, but an ETF is a more classic derivative. A put option is a derivative. A put option, however, is a right, not an obligation. A CDS is an obligation, just like insurance.

"CDS's have some features of a derivative, but an ETF is a more classic derivative"

Actually no. An ETF is a fund. A tracking stock if you will. While it may fall under the umbrella term derivative in some conversations, it is far from the 'classic' idea of a derivative.

A CDS has two sides. The buyer of the protection purchases certain rights to collect par for defaulted bonds. The seller has the obligation to pay par for defaulted bonds.

selling protection = going long credit. buying protection = short credit. selling isnt referred to as shorting in the cds marketplace. I'm a lowly assistant on a major cds / cash market making desk. its dead today so I have time to mess around here.

I hear ya marco. Lets not let semantics get in the way. Short / sell to open / selling protection / short volatility / short gamma ....we can use whatever nomenclature but the principles are very close the same.

Amazing how little we learned from Long Term Capital's collapse...

http://www.cftc.gov/opa/speeches/opaborn-40.htm

alot was learned..never trust nobel prize winning people that think they have the market beat.

buy owning CDS you have the right to deliver bonds and be paid par in the even of default. exactly like a put option.

I can take delivery on my long futures position in pork bellies & West Texas crude. How often is that really done? If the net notional balance on a cds position exceeds that of the underlying is that really an option?

I love this story...
http://online.wsj.com/article/SB124468148614104619.html

alot was learned..never trust nobel prize winning people that think they have the market beat.

stupid people are never arrogant.. Malcolm Gladwell did a good piece on the topic...

Riversider....that article on Amherst is exactly the kind of thing that happens when the notional value of outstanding derivs grows above the notional of the underlying.

They sold an outrageous amount of protection on the structure, then bought all the underlying mortgages of the structure to insure the bonds resulting from the structer could never possibly default. They spent $30mm on the mortgages and from what I'm told, collected more than $100mm in premiums. Without pricing and liquidity information, the market was sucked into a trap. This is the basis of arbitrage.

most cds are cash settled anyways. theres is alot of that going on now..thers been 10 defaults since april alone

Not disagreeing. Just humorous to see some of the big boys getting burned and crying about it...

CDS should be outlawed - all it does is incentivize lenders to put a company in bankruptcy if they have a CDS position.

CDS should be outlawed - all it does is incentivize lenders to put a company in bankruptcy if they have a CDS position.

only a sith deals in absolutes. if the company does well, they dont have anything to worry about

"CDS should be outlawed - all it does is incentivize lenders to put a company in bankruptcy if they have a CDS position."

No. If the market is sufficiently efficient, the protection will be so expensive as to remove any benefit. Its arbitrage.

No. If the market is sufficiently efficient,

Thought about this. Position limits and daily reporting of such may help mitigate this. Additionally a potential silver lining of CDS could be that it forces a fiscal discipline on companies issuing the underlying debt, or so I hope...

only a sith deals in absolutes.

I'm looking forward to our new regulators....

http://members.shaw.ca/david.p.z.888/star_wars/pics/jedi.jpg

marco, walter, riversider - you guys are obviously traders / HF so you views are a littled one-sided. I know of numerous situations where the company didn't need to file BK but it was forced to by HF that were in both the debt and CDS (so they were "hedged") - but the CDS payout was significantly larger than what they would make if they amended covenants at reasonable terms. Lenders should not be INCENTIVIZED to make a company file when all it does is result in a lot of value destruction to employees and most stakeholders (equity and debt). The "hedging" argument is complete BS - CDS is a circumstance where traders have created a product that is destroying companies left and right today.

marco, walter, riversider - you guys are obviously traders
Unfortunately, I know all too well that a good deal of "trading" is based on finding a counter-party dumber than you. Not always the case , but too often for my comfort.

Case in point: Citibank has low debt rating requiring debt bearing their name to be offered at above market rates. Citi creates product that they guarantee paying a small spread over CPI marketed to their retail base, who focus on the wrong thing, inflation risk instead of credit risk. All debentures are "guaranteed"

Finally, it is the lack of trading information which lead to tragically poor pricing of risk which lead to the implosion we are now experiencing.
The efficient market hypothesis is highly questionable(http://www.nytimes.com/2009/06/06/business/06nocera.html?em), especially now. We can try to mitigate this , but will never eliminate it. Gov't needs to do what it has been shying away from for the last few decades which is regulating leverage, so that CDS positions don't become a big enough factor to destabilize markets(when was the lsat time the Fed increased margin requirements on stock? And they want to be systemic risk regulator!)
I used to believe in efficient market theory, but seeing credit so grossly mispriced these last few years, and the all too frequently recurring valuation bubbles beginning in 1987 has made me question that...

"stupid people are never arrogant.. Malcolm Gladwell did a good piece on the topic..."

And as Gladwell himself has proven, arrogant people are often stupid.

Let's be honest about why CDS on mortgages was created. It was not to because there were insufficient methods to hedge exposure. It was to feed the Wall street CDO machine.. Truth is there are not a lot of players who have a need to go long mortgages synthetically..

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aA6YC1xKUoek
Lure of Subprime

The trouble was that most creditworthy borrowers had already refinanced their houses at 2003's record-low mortgage rates. To meet demand for mortgage-backed securities, Wall Street had to find a new source of loans. Those still available mainly involved subprime borrowers, who paid higher rates because they were seen as credit risks.

So the buyers of Synthetic CDO's thought they were investing in bonds, but in reality were counter-parties to banks like Goldman who wanted to hedge their risk. The banks treated their clients as counter-parties instead of customers.

all's fair in love , war and trading

Dedicated to AIG,FNM,LehmanBear and all's fair in love , war and trading

http://www.youtube.com/watch?v=31QUOUxqz2M

Here's a novel idea - you can't own CDS if you own the debt and vice versa. Eliminates conflicts of interest and the day traders can do their thing.

http://www.cjr.org/page_views/where_credit_is_due.php

According to the gospel of financial innovation, these instruments dispersed risk throughout the economy, making the system more secure. But they also had perverse consequences, which the industry surely must have foreseen. For instance, if you loan somebody money and insure yourself against the risk that he won’t be able to pay you back, you have less incentive to make sure he can, you know, pay you back.

Tett describes the thinking of Blythe Masters, one of the key creators of CDS, on separating risk from lending: “Doing so would overturn one of the fundamental rules of banking: that default risk is an inevitable liability of the business…. For the first time in history, banks would be able to make loans without carrying all, or perhaps even any, of the risk involved themselves.”

Therein lies the genesis of the bubble, along with the easy-money policies of the Federal Reserve. Allowing banks to offload risk enabled them to lend more and more money at a pace the economy wasn’t able to absorb. Meanwhile, collateralized debt obligations were turbo-boosted: the banks had a new incentive to push mortgage companies for more loans, so they could shovel them off to hungry investors and reap the giant fees.

As probably the only person here who actually works for a company that is heavily involved in CDS, I can safely say that EVERY academic, Wall Street trader, analyst, economist, and actual user of CDS consider them to be DERIVATIVES because there VALUE DERIVES from something else. i can also safely say that its not the exchange that matters, its the central clearing. Many instruments, including US Treusuries, Corporate Bonds, bank-to-bank interest rate swaps, and OTC equity and equity options trades happen off-exchange, but are centrally cleared - whether it be by an exchange (CME or ICE for OTC energy) or a user-owned utility (DTCC for stocks, treasuries, corporate bonds, etc).

Whether it trades voice or electronic, on exchange or off-exchange is irrelevant. To have transparency it needs to be centrally cleared and the prices and positions, etc made transparent to regulators.

Here's a novel idea - you can't own CDS if you own the debt and vice versa. Eliminates conflicts of interest and the day traders can do their thing.

So we're back to the bucket shops and the crash of 1907...

There are two types of credit default swaps. In the first, the buyer owns a security and purchases insurance to protect against default. This sounds strange: If you thought a security might default, wouldn’t you just sell it rather than bet against yourself? The explanation is that the banks used the credit default swaps to evade capital requirements—banks are required to hold some capital against their loans and investments—but the regulators accepted the swaps to show that there was no risk of default and, therefore, no need for capital.

In the second type of credit default swap the buyer of insurance does not own the underlying security; instead, the seller and buyer pretend that he does. These so-called synthetic or naked credit default swaps are pure gambling. In the 19th century many American cities had what were known as bucket shops. A bucket shop had a New York Stock Exchange ticker and would post quotations as they came in. Rather than buy the stock, the customer bet on the tape—e.g., 20 shares of sugar at $100. The shop took a commission: If the stock went to $105, the shop paid; if it went down, the customer lost. Customers could also short a stock. Edwin Lefèvre’s 1923 classic Reminiscences of a Stock Operator vividly describes the turn-of-the century bucket shop. The shops were partially blamed for the Panic of 1907, and the states outlawed them shortly after that. Of course the New York Stock Exchange, where customers bought the underlying assets, continued to be legal.

What is also funny is that riversider bashed others for brining up other types of derivatives, but claimed this thread WAS ONLY ABOUT CDS. Yet he starts talking about MBS, CDOs, etc - which are in no way shape or form CDS.

What is also funny is that riversider bashed others for brining up other types of derivatives, but claimed this thread WAS ONLY ABOUT CDS. Yet he starts talking about MBS, CDOs, etc - which are in no way shape or form CDS.

A CDO IS the tranching of Synethic MBS (i.e.the long credit position of a credit default swap) Next?

jason10006..."Whether it trades voice or electronic, on exchange or off-exchange is irrelevant. To have transparency it needs to be centrally cleared and the prices and positions, etc made transparent to regulators."

Agreed, and said as much above.

As to whether default risk can be "properly" priced.... herein lies the great failing of the system. Transparancy was only half the reason for the failure. The other large reason is that no one had ever effectively captured the credit quality of mortgage borrowers, much less been able to model their behavior under stress. All the data was based on a set of economic circumstances which began at the year 2002. No one had ever been able to observe the performance of these mortgages over the course of a complete economic cycle. Than AIG wrote protection on anything the ratings agencies assigned 'AAA'.

Riversider...."A CDO IS the tranching of Synethic MBS (i.e.the long credit position of a credit default swap) Next?"

Yeah, that's basically a synthetic CDO. "Real" CDO's were originally created out of a pooling of bank credits. I.E. JP Morgan had loans out to 200 corporations and wanted to hedge the credit risk. Stick those loans (or pieces of loans) in a trust and sell bonds against it. (simplified version)

"marco, walter, riversider - you guys are obviously traders / HF so you views are a littled one-sided. I know of numerous situations where the company didn't need to file BK but it was forced to by HF that were in both the debt and CDS (so they were "hedged") - but the CDS payout was significantly larger than what they would make if they amended covenants at reasonable terms. Lenders should not be INCENTIVIZED to make a company file when all it does is result in a lot of value destruction to employees and most stakeholders (equity and debt). The "hedging" argument is complete BS - CDS is a circumstance where traders have created a product that is destroying companies left and right today."

I understand your point, but I'd call that allowing the market to work. Simply because bond holders have shifted the balance of power does not make it wrong. In fact, I'd argue that the company who risks facing this situation better get themselves right in a hurry. That dynamic, in and of itself, helps to limit corporations from making foolish decisions about using leverage un-wisely. And as I said before, the pricing of the CDS from here forward will make the situation you describe less prevalent.

The other large reason is that no one had ever effectively captured the credit quality of mortgage borrowers

1) FICO scores mis-represented as an ability to service debt
2) Wall Street spent 14 hours a day arbing the rating agency models
3) Wall street purchased ratings from the least stringent provider
4) Originators focused on Stated Doc mortgages which have no data
5) Originators chose appraisers who over-estimated property(READ LTV'S are understated)

Not sure how one is supposed ot capture credit quality of borrowers here...

In fact, I'd argue that the company who risks facing this situation better get themselves right in a hurry. That dynamic, in and of itself, helps to limit corporations from making foolish decisions about using leverage un-wisely. And as I said before, the pricing of the CDS from here forward will make the situation you describe less prevalent.

I agree with this to a point, unless the CEO of a company engages in control fraud , focusing on personal short term profit and not interested in the long term health of the company. Control fraud is more prevalent than most realize.. For a CEO to engage in control fraud he needs to do nothing more than play with the incentives scheme and look the other way regarding transgressions.. If they get Mozillo it may be partially on this.

Riversider....we could go on all day about who derserves more criticism. I always just leave it at..."no on is innocent". But that is a separate conversation from the good/evil of derivatives / CDS's.

True Dat Walter

From the article: "“Derivatives,” he testified, “provide a means for obtaining a leveraged position without explicit financing or capital outlay and for taking risk off-balance sheet, where it is not as readily observed and monitored.” They let institutions dodge taxes and accounting rules"

All of this is covered by requiring margin and central clearing and reporting - which already happens in the futures market (which is simple form of derivatives) and in exchange-traded equity derivates, and is now happing in IRS and CDS. This is a non-issue as long as you have margin and CCP.

..."Whether it trades voice or electronic, on exchange or off-exchange is irrelevant. To have transparency it needs to be centrally cleared and the prices and positions, etc made transparent to regulators."

I agree with this as well.

http://www.bloomberg.com/apps/news?pid=20601103&sid=aZOyCjt9NZ6s
Bondholders who purchased the credit-default swaps have more incentive to let the company renege on debt terms than to exchange the bonds, Newman said. Holders of the publisher’s 7.125 percent notes due in 2011 tendered $3.8 million of the $170 million outstanding, the company said in the statement.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a.9mZUnQbY5c
A derivatives provision tucked inside the 1,201-page measure to limit greenhouse gases is intended to spur Congress to enact new laws reining in a largely unregulated swath of U.S. financial markets, according to Representative Bart Stupak of Michigan. He added to the bill a measure that would regulate over-the-counter derivatives, accepting a stipulation sought by other Democrats that those rules would be repealed if Congress adopts broader market regulations.

“Assuming this stays in the climate change bill, this will be law until broader regulatory reform is passed,” said Nick Choate, a spokesman for Stupak.

Stupak’s proposal sets clearing and capital requirements and bans “naked” credit-default swaps. The rules would subject end users “to onerous terms, primarily the provision mandating the use of collateral to secure the majority of over-the-counter derivative trades,” said Ted McCullough, a managing director at Chatham Financial Corp. in Kennett Square, Pennsylvania.