The Giant Pool of Money. This American Life; transcript & audio.

http://www.jodyeisenman.com/2008/10/07/ … recession/

orangeplus wrote:

tick-tock tick-tock tick-tock

http://www.economist.com/blogs/freeexch … atrick.net

Absolutely.  Most people have no idea what credit default swaps are.  My understanding is that the total CDS market exceeds $60 Trillion.  Once (if?) that house of cards starts tumbling, there will be no propping it up.

Last edited by Fled (2008-10-08 18:21:02)

Riots

http://www.rte.ie/news/2008/1008/hongkong.html

I had to edit my post above.  The number is $60 Trillion, not Billion.  The number is vast.

The peril relating to credit default swaps makes the mortgage backed security problem seem small, and focusing on the GSE's seem petty.  Its seems that we have created a huge debt machine that must churn along or else everything falls apart/freezes up.  To some extent, perhaps it all stems from the availability of too much cheap money for too long.

As most swaps are private contracts the numbers that are being bandied about are Bush like scare tactics - the fucking sky is falling etc.  The devaluation which has occured via deleveraging has gone a long way to mitigating the swaps risk - after all most swaps are triggered by default, not devaluation; furthermore since the blowup in August 2000 most ISDA's require collateral be posted equaling the amount at risk.

Most creditors (like my company) are taking advantage of the situation to re-write the T&C of bonds and loans to our benefit and garner bp in our favor.

orangeplus wrote:

Emmeran wrote:

As most swaps are private contracts the numbers that are being bandied about are Bush like scare tactics - the fucking sky is falling etc.  The devaluation which has occured via deleveraging has gone a long way to mitigating the swaps risk - after all most swaps are triggered by default, not devaluation; furthermore since the blowup in August 2000 most ISDA's require collateral be posted equaling the amount at risk.

Most creditors (like my company) are taking advantage of the situation to re-write the T&C of bonds and loans to our benefit and garner bp in our favor.

Problem is we have to take the companies words for it. Since there is no regulation, your statement is little more than a guess.

Also, since at least some people are hedging by reselling their stake on the other side there are potentially chain reactions of defaults out there.

orangeplus wrote:

Problem is we have to take the companies words for it. Since there is no regulation, your statement is little more than a guess.

edit: I'm not saying you're wrong, it sounds reasonable. Problem is you can't back that up with numbers, which is why the corporate paper market barfed.

CP barfed 'cause Libor/Euibor became a fantasy number.  We had money to park but very few could afford to pay us the going rate and prove the credit.  I think (and would have to look at the blotter to be sure) that we ended up going short term CP with GE and Toyota.

Back on subject: Libor tanked immediately after it became known that we were going to print up $2Tr to fund these silly bailouts, the markets are now trying to correct for the dilution of the currency.

CDS's are what I like to call under the counter trades and these are usually trader based positions as opposed to PM's and Quant's who work together to try and create magic.  The traders are paranoid and don't trust each other; they usually balance each other out.  Which is why I feel fairly confident about the derivatives market.

IN GENERAL.The Secretary may not purchase, or make any commitment to purchase, any troubled asset under the authority of this Act, unless the Secretary receives from the financial institution from which such assets are to be purchased

1. in the case of a financial institution, the securities of which are traded on a national securities exchange, a warrant giving the right to the Secretary to receive nonvoting common stock or preferred stock in such financial institution, or voting stock with respect to which, the Secretary agrees not to exercise voting power, as the Secretary determines appropriate; or

2.in the case of any financial institution other than one described in subparagraph (A), a warrant for common or preferred stock, or a senior debt instrument from such financial institution, as described in paragraph (2)(C).

http://publicmarkup.org/bill/senate-eme … ection_113

Yes we can.

Follw up question.  If the risk is really low, then why did CDS exposure crush AIG, requiring the Federal Reserve to bail it out?

Fled wrote:

Follw up question.  If the risk is really low, then why did CDS exposure crush AIG, requiring the Federal Reserve to bail it out?

AIG was crushed by a credit rating downgrade which increased their collateral requirements for borrowing which is why they needed a bridge loan.

Collateral requirements for borrowing are incredibly complex in our world, it is one of my most difficult software systems we've developed here to date.  For each piece of collateral on the books the industry type and credit rating (among other things) are weighed in vs overall portfolio percentages and averages to determine your current borrow rate.  A slip in ratings requires you to hold more "hard" assets - which usually means USD or USD equivilants.

AIG had the assets to liquidate but the growing illiquidity in the credit markets slowed their ability to do so in time.

Emmeran wrote:

AIG had the assets to liquidate but the growing illiquidity in the credit markets slowed their ability to do so in time.

So it's not that big of a deal because people have assets as collateral, but the current illiquidity means that they might not be able to get to those assets in time before they collapse.  How is this supposed to be reassuring?

The markets are responding with fear even before profit expectations are actually reset vastily lower. For me the INDU has just crossed an important benchmark. Off 5% on 5 years, 10% since the exuberant runup began 3 years ago and 41% from a year ago. In my humble opinion we are now approaching undervalued territory across the sectors and what good be one of the great buying oppertunities. But if you take your investment advice from me you are a bigger idiot then I am.

``People have lost faith in everything,'' said Philip Orlando, who helps manage $350 billion as chief equity market strategist at Federated Investors Inc. in New York. ``We're dealing with an investment community of atheists right now. Valuations no longer matter.''

Auto-edited on 2020-08-02 to update URLs

Last edited by Johnny_Rotten (2008-10-09 17:48:34)

orangeplus wrote:

http://www.guardian.co.uk/business/2008/oct/09/gordonbrowniceland

Somehow, this is our fault and, by extension, the fault of crappy mortgage investors. Rather than bailouts, we can haz moar pillorying plz?

orangeplus wrote:

http://www.guardian.co.uk/business/2008/oct/09/gordonbrowniceland

Britain is trying to smack the Nords, again.  This may be interesting to follow.

choad wrote:

Swedes

The bastard blond hair step children of the North?

They did not settle Iceland.

Woo hoo, 1000 point interday trading range in the Dow.

I am not a market timer but another dip of 10% from the low I am inclined to start some buying. With the sale of my remaining real estate last year, and the completion 4 months ago of parking  nearly all my investments in more risk proof and liquid funds like treasuries, 90% of my net worth is currently in cash.

Last edited by Johnny_Rotten (2008-10-10 16:33:24)

Market drops 107 points during Bush’s economic speech.

George Orr wrote:

choad wrote:

Market drops 107 points during Bush’s economic speech.

"Why is the stock market chock full of Liberal bias?"

Cuz the government's chock full of nuts?

Johnny_Rotten wrote:

naked short selling by the Harvard and Yale endowment's hedge fund managers.

Got to admit, that is cute.

How many bank industry lobbyists does it take to run McCain's campaign? It's always a different number. We definately need an inclusive score card but here's the first roll-of-shame entry.

http://www.dickipedia.org/dick.php?title=Henry_Paulson

choad wrote:

Got to admit, that is cute.

Yeah, but that was not even the best of Fox's Cavuto that day. I am devoting some writing time to helping this idea get some traction on the rightwing blogosphere.

Huckabee: The markets are being manipulated

Market timer on a day off.

choad wrote:

How many bank industry lobbyists does it take to run McCain's campaign? It's always a different number. We definately need an inclusive score card but here's the first roll-of-shame entry.

http://www.dickipedia.org/dick.php?title=Henry_Paulson

Almost as many as it takes for Fannie Mae and Freddy Mac managers to run Obama's campaign.  After all, they paid him handsomely, so it's only right that he hire them on now that they've been ousted from the gravy train.  They would be Clinton administration's White House Budget Director Franklin Raines, who ran Fannie and collected $50 million (currently Obama economic advisor). Jamie Gorelick — Clinton Justice Department official — worked for Fannie and took home $26 million. Jim Johnson, on Obama's VP search committee, hauled in millions from his Fannie Mae CEO job before running the company into the ground.

Some other good news today, sorta. To the surprise of no one, the New York Times plans to cut 20% of its editorial staff by 2009.

The good news is the axe will fall most heavily on those parts of the paper most in demand by advertisers, fashion & assorted other fluffy features, sparing its costly and unprofitable hard news. Someone still gives a shit.