I just read that Bloomberg article and won't pretend my mind went blank. I also couldn't say I've any real idea what these CDSs mean and the numbers are unimaginable anyway - trillions and trillions. Jesus.

Now, these CDSs are bets on insurance failing or not is it? It's amazing but I think the only analogy is a massive Casino and at bottom I don't even think it's really an analogy I think it's the truth.

Rocky mentioned the Volatility Index - the VIX - which is a measure of the up and down-ness of an index over time. People can bet on this. I can gamble on whether the ISEQ overall will rise or fall too? Can I gamble on the numbers or volume of shares too? I think I can. I wonder how much money was borrowed from banks or created in order to do this gambling and if that's the problem?

All these trillions in CDSs - they are bets and gambles on someone defaulting - this has to be wrong. It's like as though I can gamble on whether my neighbour defaults on his mortgage or not. It's especially wrong if money is borrowed for this gambling, in fact I think it's throwing your house into the pot in the centre of the poker table, and more, perhaps your country in some cases. If there is someone willing to gamble there usually is someone to fork up or receive the cash which is okay but people don't go to the credit union for a loan to put into the poker machine - is that what happened here?

What kinds of companies do these CDSs apply to? I'm sure it's not only mortgage brokers and the chances of them defaulting - is it possible to gamble on CDSs on companies who trade in hard goods too?

And what's going to come up in 21st October, Slim? Whether the lotto numbers were in the favour of the borrowing gambler or not?

Audi some of the trading is more akin to throwing in your neighbours house or a house you haven't purchased yet, but that is a different matter.

Credit default swaps are simply insurance, but they are unregulated. IMO this should be regarded as fraud because they are insurance and should comply to the requisite regulation. However if they did that they would need to hold some capital to cover the risk, but because they are called Swaps they don't. In any other sphere that is fraud I think. As I said before try telling the revenue that it isn't income it is just a swap! Better than that I can set up some off shore hedge fund that specialises in these collect my commissions and when anyone comes knocking to collect!*!!***

It needs cleaned up and IMO a lot of people should be given free board and lodgings for 10-20 years and their belongings seized to pay the hotel bill.

Auditor #9 wrote:

I just read that Bloomberg article and won't pretend my mind went blank. I also couldn't say I've any real idea what these CDSs mean and the numbers are unimaginable anyway - trillions and trillions. Jesus.

Now, these CDSs are bets on insurance failing or not is it? It's amazing but I think the only analogy is a massive Casino and at bottom I don't even think it's really an analogy I think it's the truth.

Rocky mentioned the Volatility Index - the VIX - which is a measure of the up and down-ness of an index over time. People can bet on this. I can gamble on whether the ISEQ overall will rise or fall too? Can I gamble on the numbers or volume of shares too? I think I can. I wonder how much money was borrowed from banks or created in order to do this gambling and if that's the problem?

All these trillions in CDSs - they are bets and gambles on someone defaulting - this has to be wrong. It's like as though I can gamble on whether my neighbour defaults on his mortgage or not. It's especially wrong if money is borrowed for this gambling, in fact I think it's throwing your house into the pot in the centre of the poker table, and more, perhaps your country in some cases. If there is someone willing to gamble there usually is someone to fork up or receive the cash which is okay but people don't go to the credit union for a loan to put into the poker machine - is that what happened here?

What kinds of companies do these CDSs apply to? I'm sure it's not only mortgage brokers and the chances of them defaulting - is it possible to gamble on CDSs on companies who trade in hard goods too?

And what's going to come up in 21st October, Slim? Whether the lotto numbers were in the favour of the borrowing gambler or not?

They are having a second go at auctioning off the CDS business of Lehmann's. First auction only generated 8.325 cent on the dollar net. So they are having a more serious attempt at it. Doing the same with the Washington Mutual stuff on the 23rd. These could be bell-weather auctions insofar as that the manner in which these positions are unwound is possibly more important than the sale price (within reason, of course)

Quote :

They are having a second go at auctioning off the CDS business of Lehmann's. First auction only generated 8.325 cent on the dollar net. So they are having a more serious attempt at it. Doing the same with the Washington Mutual stuff on the 23rd. These could be bell-weather auctions insofar as that the manner in which these positions are unwound is possibly more important than the sale price (within reason, of course)

'Tis mad isn't it! As Squire says, some of these 'assets' are bets or gambles on houses not already built. And by 'houses' we mean what?? after the analogy drifts away? Resources, minerals, future production potential of large economies or corporations? This stuff is too big even for James Bond.

Now they are auctioning those gambles on different things - whatever those things are - and that Lehman's auction gained 8% of what was spent on the gambles - is that it?

So, it's like the bank coming to my defaulted mortgaged house and collecting all my lotto tickets, horse bets, IOUs from Sean O'Brien , Jimmy McMahon and Fanny O'Dea who lost a couple of grand last weekend at the poker session to me? They themselves are up to it too by the way. The bank auctions my stuff to try to recoup the money I borrowed to build it. Only not really - I borrowed money to gamble and play the stock market didn't I?

This betting and gambling and IOUing has to be scaled up to super industrial levels to the level of medium-sized economies (like Iceland?) or something? What can they possibly bet that's so big it's unimaginably measured in quadrillions..? (I'm sure Bill Cosby said it was 'skabillions')

Really and truly is there a line in spy novels up to the drama of this?

This stuff is rather abstract and opaque which is why the news bulletins and the papers and most media outlets have focussed on something more easily understood: government bailouts and the ups and downs of stock indices. Interest-rate Swaps, Swaptions, Collars, Floors, collateralised debt obligations, credit default swaps and so on do not make for easy comprehensability and therefore the news crews avoid it. Nonetheless, it is the time bomb that could still bring the house down if the unwinding of the derivative positions of the bankrupt/"state"-run outfits is screwed up.

Furthermore, Citicorp, Bank of America and JP Morgan are loaded to the gills with this stuff. If it goes toxic, like sub-prime, then it's back to barter.

DOW down 3%

It'll settle around here - 5.66% - eek

How does 6.05% grab ya?
Edit - 6.25%

Starting to look like YoungDan's utterly impossible prediction is coming true.

Impossible, you say? Remember what Lewis Carroll had to say about impossible.

Quote :

"Alice laughed: "There's no use trying," she said; "one can't believe impossible things."
"I daresay you haven't had much practice," said the Queen. "When I was younger, I always did it for half an hour a day. Why, sometimes I've believed as many as six impossible things before breakfast."

We truly are in Wonderland now I fear.

Auditor #9 wrote:

I just read that Bloomberg article and won't pretend my mind went blank. I also couldn't say I've any real idea what these CDSs mean and the numbers are unimaginable anyway - trillions and trillions. Jesus.

Now, these CDSs are bets on insurance failing or not is it? It's amazing but I think the only analogy is a massive Casino and at bottom I don't even think it's really an analogy I think it's the truth.

Rocky mentioned the Volatility Index - the VIX - which is a measure of the up and down-ness of an index over time. People can bet on this. I can gamble on whether the ISEQ overall will rise or fall too? Can I gamble on the numbers or volume of shares too? I think I can. I wonder how much money was borrowed from banks or created in order to do this gambling and if that's the problem?

All these trillions in CDSs - they are bets and gambles on someone defaulting - this has to be wrong. It's like as though I can gamble on whether my neighbour defaults on his mortgage or not. It's especially wrong if money is borrowed for this gambling, in fact I think it's throwing your house into the pot in the centre of the poker table, and more, perhaps your country in some cases. If there is someone willing to gamble there usually is someone to fork up or receive the cash which is okay but people don't go to the credit union for a loan to put into the poker machine - is that what happened here?

What kinds of companies do these CDSs apply to? I'm sure it's not only mortgage brokers and the chances of them defaulting - is it possible to gamble on CDSs on companies who trade in hard goods too?

And what's going to come up in 21st October, Slim? Whether the lotto numbers were in the favour of the borrowing gambler or not?

Sorry I was pressed for time earlier, Auditor, and I didn't answer your question on the type of companies to which these apply. Basically, as I understand it, any company issuing corporate bonds. The real fun starts when a large company gets into financial trouble and more bonds are issued. At some point, the rating of the bonds starts to suffer. The company share price starts, or continues to slide and this forms a vortex whereby the share price heads south and the bond rating drifts towards junk. As the bond rating drifts towards junk, the CDS paper issued on it becomes increasingly important. General Motors is a classic case of this. 12 months ago, the share price was $42.50. Last week it was $4.00.

Its beginning to look safe to assume that its all totally fecked.

cactus flower wrote:

Its beginning to look safe to assume that its all totally fecked.

I would wait until the 23rd, cactus. The we will have a better idea.

Slim Buddha wrote:

cactus flower wrote:

Its beginning to look safe to assume that its all totally fecked.

I would wait until the 23rd, cactus. The we will have a better idea.

Shall we all get popcorn, and sit on the wall in a row watching ?

cactus flower wrote:

Slim Buddha wrote:

cactus flower wrote:

Its beginning to look safe to assume that its all totally fecked.

I would wait until the 23rd, cactus. The we will have a better idea.

Shall we all get popcorn, and sit on the wall in a row watching ?

Not for me, thanks. Bruschetta and a couple of glasses of Barolo and a grandstand seat for the Washington Mutual auction. If this goes wrong, fasten your seatbelt.

I think we should just revalue the ISEQ to the princely level of 1 to get this whole crash over with. This drip drip of several percentage falls almost every single day is just depressing. We should just get it all over and done with so as to speed the recovery. Let's clear the system now. Let's get this recession over by 2010 so that the next decade will be peachy.

Ard-Taoiseach wrote:

I think we should just revalue the ISEQ to the princely level of 1 to get this whole crash over with. This drip drip of several percentage falls almost every single day is just depressing. We should just get it all over and done with so as to speed the recovery. Let's clear the system now. Let's get this recession over by 2010 so that the next decade will be peachy.

I don't think it's totally in our hands to get this recession out of the way and international factors will have a major influence for the next 18 months on what happens everywhere. But just as ham-fisted mismanagement of the economy exacerbated the downturn, the same "thinking" will make it harder to get out of this mess. Tired, failed neo-liberalist thinking will have to be

Slim Buddha wrote:

Ard-Taoiseach wrote:

I think we should just revalue the ISEQ to the princely level of 1 to get this whole crash over with. This drip drip of several percentage falls almost every single day is just depressing. We should just get it all over and done with so as to speed the recovery. Let's clear the system now. Let's get this recession over by 2010 so that the next decade will be peachy.

I don't think it's totally in our hands to get this recession out of the way and international factors will have a major influence for the next 18 months on what happens everywhere. But just as ham-fisted mismanagement of the economy exacerbated the downturn, the same "thinking" will make it harder to get out of this mess. Tired, failed neo-liberalist thinking will have to be

sorry, abolished and basically banned. This means getting rid of Harney immediately. She has no contribution to make and it will take 2 years to undo the mess she has made in Health. Others must leave the cabinet table also. Cullen, Coughlan, O'Cuiv, D Ahern and hanafin. None of these are making any meaningful contribution, and I suspect none of them can.

cactus flower wrote:

Iceland is out of credit, currency is in toilet, there is stockpile food buying and the retailsers are set to run out of food in a couple of weeks.

Sounds to me like a possible opportunity. Wonder how quickly fish can be transported to Billingsgate?

Lets clear this up about the CDSs once and for all and we can use Lehman as an example.

When someone buys a bond from whomever there is always the possibility of it defaulting. So a good business sprung up on the same lines as conventional insurance. Someone(indeed anyone) could write an insurance policy against the risk of the company that was paying off the bond going broke. The greater the risk of default the greater the greater this insurance premium would be. For years it would have been less than a penny in the pound as default risk was very small.

So Lehman issues a bond for 1 billion over 10 years and it is bought by buyer X. Buyer X gives a little less than a billion to Lehman and the bond is paid after 10 years by Lehman for a billion. Buyer X is worried that Lehman would not be arround in 10 years so he forks out an extra 10 million to buy insurance from insuranceman Y. Now Y is happy as he has 10 million in his pocket and he thinks he has hit the jackpot. What Buyer X was worried about was credit default by Lehman but now he has SWAPPED the risk of credit default onto insuranceman Y for a small fee and he is happy.

Insuranceman Y has written a CDS and sold it to Buyer X. He is said to be naked because he does not own the bond upon which the CDS was written. These CDSs are assets in their own right so Buyer X might decide to sell it to someone else. Therefore there is a market of CDSs trading each day. As a company becomes more shaky the value of the CDSs written on their bonds will increase. That is why you see reported that some intities CDSs have now increased. We have even seen that the CDSs on US Tresuries have increased which indicates that the risk of default has increased. Because the value of a CDS derives from the value of the underlining bond they are called derivatives.

When Lehman went bankrupt the question was how much were their bonds worth. This in turn would tell us how much the CDSs were worth. The lucky people were Buyer X who was now coming to force insuranceman Y to pay up on the insurance policy and make good on the defaulted bond like he promised. The unlucky guy was insuranceman Y who was paid 10 million but was now being forced to pay the entire 1 billion.

To come at the true market value of the CDSs it was decided to have an auction to see what people would be willing to bid for them. This is the price that these people believe they will get value for at the end of the day. The auction went ahead and the final price of the CDSs was 91.38. So buyer X while not getting everything gets on OK because what he paid 1 penny for is now worth 91 pence. The big loser is insuranceman Y because he got one penny but must now give Buyer X 91 pence. That is a devastating leveraged loss. The question is will they be able to pay it or will they themselves be forced into bankruptcy.

It turned out that the amount of bonds involved from Lehman were nearly 400 billion so the losses incurred by whoever issued the CDSs was about 280 billion dollars

Everyone and anyone has bonds issued and as their danger of default increases the CDSs increase in value. Those who are short, that is those who have sold CDSs, are looking at more bad news each day as they watch the asset that they are short increase in value.

Thanks for that youngdan but that's as concise as you'll get and it'll be digested again tomorrow. Do you know much about GM and their bonds/CDSs - is this in a similar league as Lehman or what?

Also Municipalities have issued bonds too and these are in risk of default I suppose?

The question is - who has all the money to pay out this insurance?

Auditor #9 wrote:

The question is - who has all the money to pay out this insurance?

In all probability they don't. The question is what percentage can be covered and is that likely to be exceeded?

Australia is 6% down and New Zealand 4%, or there abouts, so far.

Goooooooooooooooo me - exams are over and I have had many mojito's!

Excuse me for this being an inappropriate thread!

Night!

A young man enjoying a few brews. I think this is most definitely the appropiate thread

Municipalities have tons of bonds and the CDSs would be rising in value.

GM and it's finanancial arm company GMAC have about 300 billion of bonds outstanding which means they are this much in debt. These bonds are traded each and every day. When they were issued they might have been paying say 7% but they were given a price of 100. All bonds start off at a base price of 100. Now however they are trading down I believe at about 57. So a bond that might be paying a certain amount a month which origonally cost 100 units can now be bought for 57 units. Because the payout is constant it means that the interest rate now on these bonds are in effect about 15%. This reflects the fear of default. Because the fear of default is high the CDSs would be very expensive.

Therefore the danger of huge losses from CDSs should not be too great from GM. That does not eliminate the fact that the bonds themselves have already lost about 43% of their origonal value and has a good chance of losing the rest. The bottom line is how is GM going to come up with the cash to pay off the bonds.

youngdan wrote:

A young man enjoying a few brews. I think this is most definitely the appropiate thread

Municipalities have tons of bonds and the CDSs would be rising in value.

GM and it's finanancial arm company GMAC have about 300 billion of bonds outstanding which means they are this much in debt. These bonds are traded each and every day. When they were issued they might have been paying say 7% but they were given a price of 100. All bonds start off at a base price of 100. Now however they are trading down I believe at about 57. So a bond that might be paying a certain amount a month which origonally cost 100 units can now be bought for 57 units. Because the payout is constant it means that the interest rate now on these bonds are in effect about 15%. This reflects the fear of default. Because the fear of default is high the CDSs would be very expensive.

Therefore the danger of huge losses from CDSs should not be too great from GM. That does not eliminate the fact that the bonds themselves have already lost about 43% of their origonal value and has a good chance of losing the rest. The bottom line is how is GM going to come up with the cash to pay off the bonds.

GM are supposed to have $21 billion in cash and are burning $1 billion a month. You may have different figures, youngdan, but if these figures are right, and given the debt being carried by GM, what are its chances of survival in your opinion? Because if GM goes under, the psychological effect may be huge in the US.