--as best as I can understand. That's probably why Bernhard at Moon of AL has been saying for quite awhile now that, somehow, globally, the CDS exotics should be simply declared null and void. Dead loss. No government/legal muscle can be brought to bear and threaten financial kneecapping. He says there's precedent in some actions taken during the Great Depression. Links at original site.

So here again the steps to get rid of these:
...

--all financial exchanges and markets of the world close for a week
--CDS are declared null and void and new CDS creation is forbidden until new regulation is in place
--the publicly dealt financial entities have seven days to figure out and publicly restate the value of their liabilities and assets excluding all CDS
--a onetime windfall tax will be created that socializes overt advantages some entities will have from this
--the proceed of that tax shall be used to prop up the capital of the big losers in a program comparable to the Reconstruction Finance Corporation of 1932.

There is legal precedence (pdf) for such a big move.

The killing of the credit default swap markets, which only grew big over the last two years, will take a lot of insecurity out of the financial world, reintroduce confidence and bring lending back to normal levels. Even a threat to make CDS null and void, would be useful.

Good comments to the post as well. One commenter points out a senator has already put his idea forward (maybe):

Sen. Tom Harkin (D., Iowa), chairman of the Senate Agriculture Committee, which regulates derivatives and so has a claim to authority over credit default swaps, has repeatedly questioned whether the $60 trillion industry should be outlawed...

..."They've been touted as reducing risk, but as we have seen, it has actually increased the risk, the systemic risk, of the whole society," Harkin said during an Oct. 14 hearing exploring the need for greater regulation of the derivatives...

... It is unclear, however, exactly what he contemplates, banning or better regulating. Congressional Quarterly on Oct. 14 reported Harkin planned to introduce a ban on naked CDS.

Not heard anything since however.
Posted by: T | Oct 26, 2008 10:22:07 AM

Other economists have pointed out that throughout history, beginning with very early civilizations when debt was owned by the government or priests, debt relief has been a fairly regular way to set things on an even keel again, after severe losses, perhpas due to weather/crop conditions, etc.

Need to do it for poor countries given onerous loans by the wealthy countries, as well.

The numbers revealed are $33.6 trillion. I think I read somewhere a low-end estimate of $30 trillion. That's obviously out (assuming I'm remembering it correctly). We know they left at least (I now assume every number is devalued, just as its assets are overvalued) 40% out. So we should at at least 13-14 trillion on to the 33.6 number. Meaning we know there is in excess of $45 trillion out there and we should presume that's under-counted.

Still not a number, but it should put to rest some of those low-ball estimates (in which, unbelievably 30 trillion is a low number).

My hasty search yields $30 trillion.

"First they ignore you, then they ridicule you, then they fight you, then you win." -- Mahatma Gandhi

As I understand it, and I am an econ dummy.

LINK

The problem is that DTCC can only talk about DTCC settled trades, and those apparently did go smoothly. However, as Chris Whalen from Institutional Risk Analystics reported last week, some players decided not to settle through DTCC. Why? DTCC used an auction process and did not require those seeking to collect on their insurance to produce Lehman bonds. If you were reasonably well hedged, you'd presumably go through DTCC to get it over with.

However, it appears quite a few banks did not participate in the DTCC settlement (the only reason I can think of isif you were a protection writer and NOT well hedged, you'd have every reason to compel coutnerparties to produce the bond. You basically have nothing to lose. You might get more in bankruptcy (or upon sale) than the under 9% that the bonds were priced at in the auction. And if enough people like you are demanding that protection buyers produce the bonds, there would be a scramble to buy them, driving prices up, and if you got really really lucky, maybe your counterparty would find it very costly to procure the bond and would opt for a cash settlement at a much more favorable price to you. But since that appears not to have happened, perhaps a kind reader could explain why to me). And Institutional Risk Analytics contends the number who opted out was not trivial:

Post goes on with details from article.

Do you really need to know more than that? Does it really matter if it's 20 trillion more or 10 or 50?

And let me correct an error in my math. I misread the 40% and it's not that there's 40% of 33.6 trillion to add on, upon re-reading it appears they are saying 33.6 trillion is only 60% of the pool. Which means we're looking at 55 trillion plus for the total pool. I'd say those "high" end 60 trillion estimates are looking awfully close to right.

That's twice the amount of the size of the global economy and the bailout plan was simply to poor money into the hole. (Edited to change typo of poor to pour, but in retrospect, I'm leaving it since it seems to be a more appropriate word to use.)