Today’s Cas­san­dra Award goes to Yves Smith of Naked Cap­i­tal­ism, who, in August of 2007, had this to say:

I am stick­ing my neck out in this post, so if any read­ers dis­agree, don’t hes­i­tate to speak up.

We have seen the fol­low­ing over the last few weeks: con­cern about whether banks that have expo­sure to sub­prime can be trusted as coun­ter­par­ties; reports and rumors of losses at hedge funds (at a min­i­mum, stat arb and “event driven” strate­gies); some less acute con­cern about banks’ LBO expo­sures (they will clearly take losses on their hung deals and com­mit­ments, and the more dis­tress there is in the credit mar­kets, the longer and prob­a­bly more costly the resolution).

These con­di­tions should have seri­ous ram­i­fi­ca­tions for the credit default swaps market. CDS are only as good as the credit-​worthiness of the pro­tec­tion seller….