Double Speaking Double Dipping 0
Interesting phrasing, “overlapping contracts” and “redundant trades” (emphasis added):
(snip)
Traders have been rushing to cancel redundant trades as federal authorities seek to impose regulations on the market for the first time since it was created a decade ago. After the collapse of Bear Stearns Cos. last year, 17 banks that handled about 90 percent of trading in default swaps agreed to initiatives including trade compression to help reduce day-to- day payments, bank staff paperwork and potential for error.
What those phrases mean was explained in this interview with Frank Partnoy.
The financial geniuses sold the same derivatives over and over to different buyers, because they thought nothing would ever go wrong. Not only did they build a house of cards, they printed the damned cards themselves.
In other words, the city slickers kept selling the Brooklyn Bridge repeatedly, obsessively, to different suckers–in this case, the suckers were not country hicks, but other city slickers.
Then, one day, all the owners of the bridge showed up at once, to discover not only that hundreds of people had deeds to the bridge in sole tenancy (that is, each all to his lonesome), but also that, in the meantime, the damned bridge had fallen down.
On Wall Street, this is called “creating wealth.”
