Kevin Drum Smackdown Watch

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KEVIN DRUM SMACKDOWN WATCH….Felix Salmon says we shouldn’t be demonizing credit default swaps as the source of our recent financial turbulence. Earlier this morning I said I wasn’t so sure about that. Today Salmon responds, and he starts out strong:

Add Kevin Drum to those who think that a bit of CDS demonization is not such a bad thing at all. Unfortunately, he’s a bit shaky on the facts….

Sigh. Story of my life when it comes to the credit crisis. Salmon’s response is too long to excerpt, so click the link and read it. I find it disturbingly persuasive, especially this part, which is something I’ve been wondering about too:

It’s not surprising that CDS desks haven’t lost a lot of money, because CDS, like all derivatives, are a zero-sum game.

Well, yeah, what about that? Mortgage losses are absolute: if a homeowner defaults, then the noteholder loses a lot of money and nobody else makes any. But derivative trades always have two sides, so if banks have lost jillions of dollars on derivative speculation then there ought to be a whole lot of people licking their chops right now in anticipation jillions of dollars in gains. But as Salmon says, that doesn’t seem to be the case. So maybe that means there aren’t a lot of losses?

So….I dunno. As always, it bugs the hell out of me that there’s so much disagreement even about things that strike a layman like me as fairly basic. I mean, recently the Minneapolis Fed published a paper saying that the credit markets were actually in fine shape, and a few days later the Boston Fed published a paper saying they were all wet. Hell’s bells. A bunch of Fed economists can’t even agree on something as basic as whether credit is contracting? WTF?

In the same way, I guess we really don’t know how big the losses have been in derivative speculation related to the subprime crash — which, of course, isn’t a bad argument for making derivative trades a little more transparent in the first place. In the meantime, though, I’d sure like to hear some other experts respond to Salmon’s points about the CDS market. His arguments seem well formed to me, but then, if I was wrong once I could be wrong again, couldn’t I? Are there any finance gurus out there to dive into this?

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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