 Quote:
Originally Posted by boont
Yrs To Go
I think the point is that we are now learning that traders were manipulating the swaps to give the false impression that the swap prices were reflecting a problem with the bonds themselves.
These same traders had already shorted the bonds.
b.
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Ummmm, didn't you say that the problem was that the swaps allowed bond prices to remain too high even when institutional investors knew the underlying was going to default? In your example the investor owned both the bonds and CDS protection and, therefore, had no incentive to sell the underlying (presumably resulting in overpriced bonds). Now I'm to believe that we've somehow "learned" that traders were manipulating swaps to give the impression that the bonds had problems, when apparently they did not . . . I'm sorry but I'm not really following you.
Perhaps a real life example would help.
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