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I'm curious about Dodd-Frank and the mutualization of swaps. It seems like that could have some serious implications but this isn't something I know enough about. As I understand it, Treasuries have been attractive because no one thinks the US Government is going bankrupt. It sounds like now under Dodd-Frank, people don't care if JPM or the like go bankrupt either (implied guarantee?) Can you suggest avenues for learning more about these changes?

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It's pretty simple really. Swaps are now centrally cleared, so you have to post collateral through a clearinghouse. If on any day, one party cannot settle up on their daily variation margin, the trade is terminated.

Compare this to before, when swaps were often un-collateralized, so you might have a huge paper profit on a trade that you'll never actually realize because the counterparty lacks the cash to settle up.

So before, you could lose the total amount of your trade, but now you can only lose a day's worth of gain or loss.

This is a big improvement, and the risk to the taxpayer is pretty de minimus. Of course the central clearinghouse could default, but that's very unlikely for a variety of reasons (mostly that the central clearinghouse's whole reason for existence is not to default).

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