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Ambac, CDS and Geithner: It’s AIG All Over Again

Ambac, CDS and Geithner: It’s AIG All Over Again

“This week in The Institutional Risk Analyst, we return to the financial travails of Ambac Financial Group (“AFG”), which recently filed bankruptcy after several years of twisting in the wind due to questions about solvency related to RMBS exposures. AFG, as it turns out, is the latest project of Treasury Secretary Tim Geithner, who wants to again protect the largest bank dealers and the market in over-the-counter derivatives from legal discipline…

All of the above serves to show just how exposed the big banks remain to any issues relating to the $47 trillion OTC swap market. Why do the banks need everything to break their way? Are they not just market makers in the OTC marketplace? Or is the AFG mess once again exposing the “daisy chain” effect whereby breaking one OTC contract takes down the entire rancid system?”

http://us1.institutionalriskanalytics.com/pub/IRAMain.asp