davelj – i understand how these securities work and i agree that some of these securities can become worthless at least temporarily – in the case of a fire sale or in instances of a liquidity crisis – but as a collective portfolio – for any bank / hedge fund, its not likely that their entire portfolio will become worthless. so sorry i didn’t get into specifics, i was merely speaking about valuations in general and porfolios whether they be long or short. i’m in the industry and how these securities get valued is up for a lot of debate, by everyone from regulators to those that holds these securities. how do you value a security that rarely trades for instance or when many of the benchmarks are indices comprised of synthetic securities? how do you determine a street value? i’m well aware of the difficulties – i’m merely saying that there are 2 sides to every transaction- something a lot of people seem to miss. and that someone is profiting off of this, and unlike many other security types, there are assets backed by these issuances.

traders are bidding to lose these days – there are a lot of investors who aren’t willing to buy up anymore subprime debt, but things quickly change, so my point is not whether a superfund is needed, its what the market perceives as the ability for upside, temporary or not. and there is always someone willing to buy. if the government steps in, there will probably be a few takers who will bet on the market stabiliziing – at least temporarily.