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"Stress Test" Results and Credit Default Swaps.Credit Insurance Policies.

"Stress test" results have been released by the Federal Reserve Board in 37 pages of text, charts and graphics, plus 1 cover page: Download Stress Test Results.050709.

In a continuous revelation of a secret hidden in plain view, the results are clear that Credit Default Swaps (CDS's) and other "derivatives" offer intolerable risk to the larger economy. See Floyd Norris, "High & Low Finance / Findings, But No Final Word" p. B1, col. 1 (New York Times Nat'l Ed., "Business Day" Section, Friday, May 8, 2009): "We know that there could be further losses on mortgage-backed securities -- despite claims by many banks that the securities have already been marked down to absurdly low levels." See also Louise Story and Eric Dash, "The Great Divide/Results of Bank Stress Tests Split the Financial Landscape" p. B1, col. 2 (New York Times Nat'l Ed., "Business Day" Section, Friday, May 8, 2009).

CDS's are now widely recognized as unregulated Credit Insurance unbacked by Capital-Reserves. E.g., post here of March 18, 2009 and previous posts listed in it. See also related posts on April 1, 2009 and on April 16, 2009.

The intolerable risk of CDS's to the larger economy is that Federal Taxpayers will pay the freight for the ride taken by a few, who immediately cashed in the checks they were paid for selling the unregulated, uncapitalized CDS's. See Mary Williams Walsh, "A.I.G. Cuts Loss Sharply to $4.35 Billion in First Quarter" p. B5, col. 1 (New York Times Nat'l Ed., "Business Day" Section, Friday, May 8, 2009).

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Full post as published by Insurance Claims and Issues on May 14, 2009 (boomark / email).

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