The sincerity of Credit Default Swaps

Description

I relate SPVs to the medieval triple contract that involved a loan, cashflow transformation and credit enhancement (the 3 contracts) and were declared usurious in ?1516 on account of guaranteeing a return (i.e. breach reciprocity). The Potts opinion distinguishes a CDS from and insurance contract and a wager. This is often disputed (e.g. Kimball -Stanley) on the basis that a CDS resembles an insurance contract and so should be governed by (strict) insurance legislation. I disagree, the point of the Potts opinion is to enable CDS to be traded in the 'canonical market mechanism', i.e. market-makers simultaneously quoting bid and offers. I argue that this imposes a sincerity on their pricing that is not possible if they were priced as insurance contracts. The role of CDS in enabling sub-prime lending is another facet and connects to charity.

Period	20 Oct 2017
Held at	EAEPE Annual Conference
Event type	Conference
Location	Budapest, Hungary
Degree of Recognition	International