Reply #11: Some discussion here....

[slipslidingaway]

In the case below if a suppier is concerned about collecting on their receivables have them pay in advance, business is not risk free and not every company should survive.


"...It is difficult to argue with the logic of Soros’ op-ed piece but Geithner also has a point regarding the difficulty of knowing the intent of a purchaser of a CDS. To make a ban on naked short selling practical, it would be necessary to force the purchaser to “prove” that some underlying exposure exists to the security covered by the CDS. This is simple enough when the purchaser is protecting against default of a bond that is held, but the exposure that is being hedged may not directly correspond to the underlying financial security.

For example, let’s say that someone has an ongoing business relationship, such as a supplier relationship, with a company that is in some financial trouble. In such a situation, the purchaser of a CDS may be hedging against the collectability of trade receivables. On paper, this purchaser would not own the underlying security protected by the CDS, but the CDS may in fact be a legitimate “proxy” to hedge the exposure of the trade receivables. There are obviously many other examples like this..."