Originally Posted by itstarted
kap and RT:

Let's turn the cause - effect question around.

If the Credit Default Swaps are not at the heart of the problem, and if they are indeed legitimate financial instruments, based on some reasonable justification, then why prithee, have they not been unwound according to the contractual agreements.

I believe that the uncontrolled risk management formulas served the greed for marginal profits well, and that the lack of any regulation or an honest rating system provided the opacity that compounded the eventual total... even as much as the way Madoff handled the pyramid/Ponzi scandal.

Warren Buffet learned (then forgot) the lesson early on, much to his dismay.

Nowhere except in the CDO's and later the CDS's (and other Acronymic instruments) was there a way to slice and dice the underlying values, and to extend the call dates.

I would suggest that rather than government "meddling" being the cause, that it was the total lack of regulation. The markets buried themselves, though the perps walked and left the people with the bill.

The question then... Why can't the derivative market be unwound?

You're putting words in my mouth. Read again what is being said. It's not that derivatives have not made this recession worse... they have made it worse. But they were not the cause of the recession. The relatively cheap credit was the the culprit and the derivatives have made a recession that could have passed in 6 months in 2005 to possibly a recession that could last years starting in 2008.

A gem cannot be polished without friction, nor a man perfected without trials. ~Chinese Proverb

The early bird gets the worm, but the second mouse gets the cheese. ~Jon Hammond