Japanese banks want Kyle Bass to close his CDS default swaps

Business Insider reports that Kyle Bass told a University of Chicago  audience that one of the world largest banks has asked him to close his Japan CDS trade. I said this would be the new financial debacle one year ago.

Here is a Kyle's world

"The AIG of the world is back. Here's what I mean by that.

 I have 27-year-old kids selling me one-year jump risk in Japan for  less than one basis point. $5 billion worth at a time.

You know why? Because it's outside of a 95 percent VaR. It's less than one year to maturity. So guess what the regulatory capital hit is for  the  bank? It rhymes with "hero." Right?

And, if the bell tolls at the end of the year, the 27-year-old kid  gets a bonus. And if he blows the bank to smithereens, ah. He got a paycheck all  year. 

We're right back there. I mean, the brevity of financial memory is only about two years. I wouldn't sell nuclear holocaust risk in Dallas for less than a basis point. You should be fired for thinking about selling something for  less than 50 basis points, you know? And yet, this is happening again. 

And it's happening in huge size. You know, huge. We bought $0.5 trillion worth of these options.

 Interestingly enough, recently, one of the biggest banks in the world called me and asked me if I would close my position. That  was an interesting day for us. That happened to me in 2007, right before the  mortgages cracked. 

They said, "You know, we ran some new risk tests."

And I said, "Really?"

And they said, "Yeah, you know, our new stress scenario is a little bit more punitive than the last one."

And I said, "Well, what is it?"

 And he says, "We don't want to share our proprietary secrets of  our bank with you."

 And I said, "OK, then I'm not closing it."

 And they said, "Whoa, whoa, whoa, whoa. Well, how about: in our  old one, we had rates being stressed 50 basis points, and the new one has rates  being stressed 400."

 And I said, "Ooh, yeah, 400. That would really hurt you on this  trade, wouldn't it?"

 And they said, "Yeah, we'd like to close that one."

 And I said, "Well, I'd like to, but I'm not going to do that for  you, so I'm sorry."

 But anyway, they are starting to realize. Why would they run a  stress test like that? Who would have them run that stress test? This is  happening."