In the last days you can read many times that speculators are guilty that the EU debt markets came under severe pressure. Especially the availabilty of credit default spreads (CDS) was seen by some observers as the main tool to bring the EU government debt markets down.
If there are a lot of speculators selling CDS on Greece and other markets, who is on the other side of the trade as for every seller there must be a buyer? I never heard this simple question asked. Why not?
Is there really heavy selling taking place (what means, that heavy buying is also happening)? Who is the "strong hand" and who is the "weak"? These are really important questions to answer before blaming the speculators.
The only strong hands in this game are the large broker/dealer firms on wall street. Thanks to there market making activities in CDS they know who is on which side of a trade.
ReplyDeleteOn the other side are Speculators and Investors, small and large - essential the same as on the one side.
ReplyDeleteThe problem I see is that even financial educated people seam not able to understand that the whole derivative business is a "zero-sum-game". Speculators have been always on the other side of their view and have been used as an excuse for their "rational" reasoning.