Risks of Transferring Risk

University of Chicago's Douglas Baird on the risks of transferring risk

[Posted on December 12, 2008 at 1:52 PM] E-mail | Leave a Comment Filed under: Banking | Conferences | Crisis On Wall Street | Distressed | debt markets

Speaking at Crowell & Moring LLPs Credit Default Swaps conference on Thursday, Douglas G. Baird, a professor of law at the University of Chicago, talked about the somewhat problematic nature of the derivatives. "The big risk with credit default swaps is the big difference between the party that holds the risk and the party with control of the underlying asset," Baird said. "If you come to a bank and tell them you're going to have to file bankruptcy tomorrow if you don't get a waiver, previously they would say, 'Let's work something out.' "Now they aren't holding the risk; the issuer of the credit default swaps is," he continued. "So you're telling the bank that if they don't give you the waiver, they'll be paid off in full right away and never have to talk to you again." Baird continued, saying that the situation hasn't reached that point because issuers are there helping to keep the bondholders in check, but that it is a real concern. - George White See Crowell & Moring LLPs Credit Default Swaps conference agenda See more Dealscape posts on the CDS conference Tags: banking conference credit default swaps Crowell & Moring debt markets defaults risk