Word: cds
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...Carnegie Hall, but the Gem Hotel's Rooms for Tunes program could get your music piped into the lobbies of its three New York City locations. Artists who perform or live in the Chelsea, Midtown West or SoHo neighborhoods of the city may bring their CDs to the nearest hotel by May 31 for consideration. If selected, you get your music played and one free night at the hotel, which you must use by September 7. Winners will be notified by June 22. 449 West 36th Street (Midtown West); 135 East Houston Street (SoHo); 300 West 22nd Street (Chelsea...
...This trust requires considerable faith in rating agencies, such as Standard & Poor’s and Moody’s. To make a low-risk purchase of a CDS, a firm needs to buy from an insurer with an excellent credit rating. If any of these ratings are inaccurate or get downgraded, this will dramatically affect the CDS and cause panic. Therefore, the government must institute a reasonable collateral requirement for the sale of CDSs. Further, rating agencies must closely monitor investing schemes that use insurance from highly rated firms like AIG to make risky investments in poorly rated firms...
...firm can purchase a CDS on a company with which it has no direct relationship. Consequently, if a firm looks like it will fail, one can purchase a CDS on it so that when it collapses one receives the insurance payout. This incentivizes firms to work against each other and was one reason why Lehman Brothers collapsed. As the Financial Times asserts, “a house insured for more than its value is always considered a fire risk.” Healthy competition among banks is essential to a vibrant economy, but incentivizing the failure of banks...
...firm defaults, it cannot pay out the next firm’s insurance that can cause another firm to default, and so on. To further complicate matters, since CDSs are unregulated, there is no authority to which these transactions are reported. Thus, no single firm knows how many CDS deals have been made, and firms do not know to whom most CDSs have been sold. Additionally, after the original transaction, a firm may sell its end of the CDS bargain to another firm without notifying the original counterparty. This exposes the financial system not only to a significant chain reaction...
...ensuing panic results in a lack of confidence, since one cannot be sure if a company is doing as well as it claims to be. Therefore, the government must make CDS transactions a matter of public record...