The credit default swap market is a modern Delphic Oracle. It speaks
loudly and profoundly – these days at regular intervals – albeit using somewhat arcane terminology.
…The most plausible interpretation - and here I’m willing to debate what
the Oracle meant exactly – is that people expect the government will
force the conversion of junior bank debt into equity. The treatment of
private preferred shareholders at Citigroup, last week, is seen as the
harbinger of further losses for investors.
…The events of mid-September 2008 were traumatic and awful to behold. I
saw that trailer and I don’t want to see the movie. But it is exactly
into that scary future that we now head.
Addendum: An excellent follow-up.