Maybe it was the ratings agencies, after all

Why the CDS Market Didn’t Fail – Finance Blog – Felix Salmon – Market Movers – Portfolio.com
Some useful quotes:

This bears repeating: if you take credit risk by writing credit protection, your position is marked to market daily, and is margined daily. Compare that to the behavior of banks, say, which took billions of dollars of credit risk by holding super-senior CDO tranches and didn’t — couldn’t — ever mark them to market. It’s hardly a surprise that the banks have been stunned by the magnitude of their losses, while writers of credit protection were forced to face their deteriorating positions on a daily basis.

But hang on, I hear you say, what about AIG? What about the monoline insurers? Weren’t they undone by CDS? Yes — and they’re the exception which proves my point. AIG and the monolines had something no other writer of credit protection had: a triple-A credit rating. As such, they were the only sellers of credit default swaps who didn’t need to put up collateral as the market moved against them.

More complex? Yes. More opaque? No. In fact, credit default swaps, being much more liquid than most debt instruments, are thefore also more transparent than most debt instruments. Try to sell a CDO tranche, these days: you can’t. There’s no two-way market in such things. But if you want a price on a credit default swap, that’s very easy to obtain.

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