Friday, July 10, 2009

Banning risk...

A most silly recommendation from the esteemed congresswoman from California. Because something is a "contributing factor" does not mean it should be banned. The problems we are having now are not because of improper instruments, but improper assumptions underlying the value of same. Extrapolating linear increases in prices or cash flows of just about anything is folly...this clearly holds for House Prices as well as the budget projections for individual states. So goes California, so goes America.

July 10 (Bloomberg) -- Representative Maxine Waters
introduced legislation to ban all credit-default swaps, the
financial instruments blamed in helping to take down American
International Group Inc.
“Credit-default swaps are one of many contributing factors
to the current economic crisis,” Waters, a California Democrat,
said in a statement released at a hearing today on the Obama
administration’s plan to rein in the $592 trillion industry.
“Preventing all credit-default swaps is essential to bringing
stability to the market and preventing a similar crisis in the
Treasury Secretary Timothy Geithner is testifying before a
joint hearing of the House Financial Services and Agriculture
committees. The administration’s plan doesn’t call for an
outright ban on credit default swaps.

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