- Jan 27, 2015
- 844 (0.35/day)
|Motherboard||Asus Prime Z490M Plus|
|Cooling||Arctic Liquid Freezer 2 240mm AIO|
|Memory||G.Skill Ripjaws V 32GB (2 x 16GB) DDR4-3200 F4-3200C16D-32GVK|
|Video Card(s)||EVGA GeForce RTX 2060 KO Ultra|
|Storage||Inland Premium 256GB SSD 3D NAND M.2 2280 PCIe NVMe 3.0 x4 + WD Blue 1TB SATA SSD|
|Display(s)||Acer K272HUL 1440p / 34" MSI MAG341CQ 3440x1440|
|Case||Lian Li 205M|
|Power Supply||PowerSpec 650W 80+ Bronze Semi-Modular PS 650BSM|
|Mouse||Logitech MX Anywhere 25|
|Keyboard||Logitech MX Keys|
"Credit default swaps came into existence in 1994 when they were invented by Blythe Masters from JP Morgan. They became popular in the early 2000s, and by 2007, the outstanding credit default swaps value stood at $62.2 trillion. During the financial crisis of 2008, the value of CDS was hit hard, and it dropped to $26.3 trillion by 2010 and $25.5 trillion in 2012. There was no legal framework to regulate swaps, and the lack of transparency in the market became a concern among regulators."
This makes about as much sense as saying that the Goodyear Eagle GT was 'invented' in 1981. It's just another tire and that is just another derivative, as your link stated. You can "invent" derivatives of the median shoelace string size if you want. There's nothing 'inventive' about that, it's not a new instrument, it's just being applied to something else.
And more to the point, any derivative if used as an investment tool is high risk. These guys are basically saying, I've got a 5% chance of losing everything, a 5% chance of making nothing, and a 90% chance of making 20% per year. I'm gonna do this for a year or two and make a name for myself. Then they get an unexpected event and lose everything - that being, all of someone else's money.
I'd say 100% of bitcoin investors like those odds. Which gets us back to it is not the instrument, it is the investor mentality that causes these crashes.
To that point, we just had a small hedge fund implode and it had nothing to do with the credit default swaps you mention. They used a different 'invention' (derivative) called a total return equity swap. These swaps are very similar to call options except that the payment is recurring and there is no expiration date. You get the benefit of price going up and you don't have to buy the stock, you even get the dividends, but you have to keep paying a fee. Works great, just like the scenario I outlined above. Except, then the stock goes down. And then you get a margin call.
It's this lack of fear that causes these things to happen.