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Credit Default Swaps Still Wreaking Havoc

By Jim Cramer

 About this article:
 What did SEC Chairman Christopher Cox think? Doesn't he understand the game? You put $25 million in a credit default swap. Then you buy all the puts you can, then you jam the stock down through shorting, then you buy $25 million more in credit default swaps, then you alert the media, and the ratings agencies panic and downgrade, and you are done. The company is finished. It is a remarkable moment, a total reallocation of capital from the longs to the shorts. Of course, if anyone knew how little it takes to move the credit default swaps -- $50 million can double or even triple the rates -- then the whole process would seem pretty silly. And the markets are unregulated because Christopher Cox did not want to get in the way of the free market. So you can wreck XL Capital and Prudential and...

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