Quote:
Originally Posted by Paul T
I’ve been out of this space for a long time now, but I’m pretty sure that notional CDS volume is way lower now than it was in ‘08. During the subprime crises the notional volume on credit default swaps dwarfed the size of the underlying bonds - so many were used for pure speculation rather than hedging. There have been several regulatory changes since then too which I think has helped. Data is hard to come by unfortunately since these are private contracts - there is some data available but it by no means covers the true size of the market.
As for AI, I definitely agree there will be a crash at some point. It’s just hard to imagine that there will be returns commensurate with the massive amount of investment that is flooding into this space right now.
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Thank you for posting. Agree but a part of my question which may not be answerable is determining CDS volume. Given this story, with more to come, will CDS volume go up? What is the tipping point? Will we see complicated made from whole cloth financial instruments like the synthetic CDOs of 2008 fame enter the arena? Someone in the private credit world must be modeling a way to socialize the losses and creating financial instruments to affect that outcome if things so south. Someone else has to be modeling that model on Wall Street. At least I hope so.