Categories Banking Crisis The Returns to Financial Engineering Post author By Philip Lane Post date June 15, 2009 5 Comments on The Returns to Financial Engineering Willem Buiter writes here about a highly-profitable strategy undertaken by Amherst Holdings. Related Tags Amherst Holdings, CDS market ← Morse: the Trinity link → Growing the Economy 5 replies on “The Returns to Financial Engineering” It is certainly up to politicians to insist on the regulation needed to stop these kind of practices. That such unhealthy still financial products exist on a such a huge scale is terrifying. One would have thought that the potential for CDS to amplify the contagion of financial meltdown was scary enough without having a system which allows this variation on “insider trading”. The patients were certainly busy while in charge of the asylum! This is the least of the worries in the cds market. In insurance, you have to be able to show that you have an ability to meet the insurance payout given certain levels of probability. You only have to post collateral on the market movement of the spreads since the date of inception. Given the low levels of probability of default occurring, there are far more worrying issues in relation to cds than the above small market manipulations. I disagree! User 3636etc and Victor Galis have it right. CDS use is being abused; the abusers are bit; the abuse will decline. This was both a moral and profitable act by Amherst. Where can I buy into them? “Financial Engineering”….. What an oxymoron…. what was described there is not engineering of any kind, it is fraud. “Financial Skulduggery” or “One more reason to shut down this rats nest” would describe it better… http://www.econbrowser.com/archives/2009/06/how_to_lose_on.html @ Garry et al NB the mortgages were all paid off! The little people won! Amherst won! The big boys, too big to think, lost! The insurance worked! The empty moral posturing demonstrates a great deal of what went wrong in Ireland! Remember Iceland! Comments are closed.