2/9     motd finance whizzes, if the total value of CDS last year was
        62 trillion, and now it's basically worthless, does that mean
        somewhere, somehow, someone collectively has lost 62 trillion?
        thanks
        \_ Yup.  Somehow, somewhere, $62T of money just went with the
           wind.  And what's more, if people suddently decide that CDS
           is worth something again, that money comes right back.
        \_ These things are supposed to net out, so for every loser, there
           should be a winner. Some of the losers are bankrupt though and won't
           be able to make good on the claim. Your second proposition "now
           it's basically worthless" is dubious, btw.
           \_ Who are these 'winners'?  Also I'm asking a real question, not
              being an ass. thanks.
              \_ I understand that you are not being an ass, but you are
                 repeating some common misperceptions here. If I buy a CDS
                 from you, giving you some cash up front in return for your
                 promise to make me whole if GM goes bankrupt and I lose the
                 money on a bond I just bought, and then GM goes bankrupt, you
                 are the loser and I am the winner. Is that clear enough? Now
                 if I go to redeem my claim and you declare bankruptcy, then
                 we are both losers, which is what people are afraid of now.
                 We don't know what this "counter-party risk" really tallies
                 up to right now, which is why the economy is in such a mess,
                 but it is certainly less than $62T.
           \_ I disagree with you about this being a "zero sum" game.  Here,
              I definitely think there are losers without there being any
              winners.  Suppose suddenly all stocks are worthless.  Who
              wins?  People who just got out of stocks might consider
              themselves lucky, but they didn't directly benefit from
              stocks going to zero:  they won "otherwise".  Short sellers
              might win, but that's a small fraction of the loss, not a
              zero sum.
              \_ Stocks aren't very much like CDSs. If I redeem my CDS to
                 you and you honor it, you lose money and I gain it. The only
                 way there can be an overall loss if via counter-party risk
                 e.g. you don't make good on the contract.
        \_ Why do you think they are worthless (URL, please)? They are still
           enforceable contracts, unless written by Lehman. They also aren't
           "supposed to net out." That was the undoing of the ibanks. They're
           supposed to be underwritten by people who can price the risk of
           default accurately. They're like tradeable insurance.
           \_ Yes, for every person losing a dollar, another person gains
              a dollar. That is what "net out" means. The $62T didn't just
              disappear, except in bankruptcy cases, where it can be argued
              that it never really existed in the first place.
              \_ Correct me if I am wrong, but the costs of insuring debt
                 fluctuates because these things are traded. Worse,
                 derivatives based on these things were traded.
                 \_ Yes, but their book value is not $62T, just the nominal
                    value.
        \_ I would argue that most of the value of the 72T CDS market is/was
           imaginary, and therefore all of the profits and jobs and stock
           fluctuations based on CDS trade profits are a load o'crap,
           and this is a huge contributing factor to current financial woe.