Larry McDonald on the rolling credit crisis

We had the LDI [liability-driven investment strategy] scandal, or the stress in London in October.  Then it's rolled over to regional banks.  Then it's rolled over into Credit Suisse.  Deutsche Bank CDS (credit default swaps) is now elevated.  You've got MetLife.  Lincoln Financial CDS is now blowing out.  And then you've got commercial real estate loans that are impaired.  And then you're talking about Capital One CDS, which is the consumer; that's at multi-month wide.  So this is clearly a rolling credit crisis.

Larry McDonald, CNBC interview, 2:00 mark, March 28, 2023

AIG executive on the company's credit default swap exposure (2007)

It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions.

~ Joseph J. Cassano, head of AIG Fincancial Products division, August 2007

Rating agency ratings of MBIA and Ambac miles apart from ratings implied by credit default swap market

Ambac and MBIA have raised billions of dollars of new capital so that Moody's and Standard & Poor's would keep top ratings for the bond insurers -- and the rating firms have done just that.
Moody's implied-ratings group paints a completely different picture. Using the CDS market, [David] Munves's [Moody's Analytics] unit rates both MBIA and Ambac Caa1. That's seven notches below junk and 15 below the official Moody's rating.

Swap traders see there's a huge risk that Ambac and MBIA will default, hedge fund adviser Tim Backshall says. He says swap traders don't trust S&P's and Moody's investment-grade ratings for the companies.

"The only thing holding them at AAA is simply the model that the rating agencies claim they use to judge that capital and the fact they know that if they downgrade the companies, it'll push them into default,'' says Backshall, of Walnut Creek, California- based Credit Derivatives Research LLC.

The rating companies say their grades are correct.

~ David Munves, managing director for credit strategy research at Moody's Analytics, "Moody's Implied Ratings Lab Reveals Ambac, MBIA Turning to Junk," Bloomberg.com, May 30, 2008

Bill Laggner on credit default insurance

Complacency is near an all-time high and mutual fund cash positions are near an all-time low. Bank loan loss reserves are falling due to the illusion of credit default swaps. Everyone is writing default insurance.

~Bill Laggner, Bearing Asset Management, "Everyone is writing default insurance", Dollarcollapse.com, November 29, 2006