rockyracoon wrote:

A more worrying development today is the Euribor lending rate. Both the Dec and Mar contracts show a likely increase in the 3 mos Euribor rate. This is where the action is, and this is why the equity markets are spooked. It's all about solvency and liquidity for main street business right now.

The straw that broke or mended the camel's back today is the Lehman CDS auction. If anything can put a temporary floor under the panic, this'll be the auction to do it. I believe the final auction report is due out at 2 p.m. EST. Anything under .80 cents on the dollar for the instruments might be seen as temporary success.


9:33 - amended to under .80 cents on the dollar

Why would anyone buy into it? Is there any kind of government guarantee attached?

Rockracoon - I have been reading about the Euribor rate. What is it and how does it hit Main Street?

They are saying the credit card debt is now beginning to default in the US. I can see a general default coming. Stock up the larders lads.

Audi

The suggestion would mean insider dealing would it not? IMO several of the Banks need to disappear and we could use that window to delve inside and see what we can find! However that wretched guarantee now gets right in the way. It joins the Banks and Gov at the hip. One of the most stupid things I ever come across. You never commit to underwriting the unknown on anyone's word and in the complexity of this market a quick glance at the balance sheet is meaningless.

Slim Buddha wrote:

The problems of falling stock markets and sub-prime driven bailouts may be dwarfed by a crisis in the pipeline and coming our way: the coming CDS problem. Credit Default Swaps are complex, barely-known instruments which have been described by the Sage of Omaha, Warren Buffett, as the financial equivalent of Weapons of Mass Destruction. AIG, the insurer with the pedicure-addicted top management strata, was/is a big player in this market. Experts reckon that the total market value in this exotic market is $54.6 trillion. Put another way, the Wall Street rescue was 1.3% of the CDS market value. If this goes into a tailspin, then we really will be in uncharted territory.

I agree it is an utter mess and one worth investigation!!!

All the CDS and similar need to be registered and regulated along with hedge funds. Needs to happen ASAP and needs to be done at a European level if wider agreement can't be obtained. This is utterly essential. Warren Buffet has some nerve. Why so much veneration is beyond me. IMO he clearly has major conflicts of interest and is the largest share holder in Moodies which fouled up on a lot of the credit rating. I am sure that those errors in ratings and value would have been advantageous to some at the time and are major disadvantages to many now. There have been law suits against them.

http://www.cnbc.com/id/20998334/

This is a major issue that no one seems to be addressing. I think it would be worth very thorough investigation.

With mortgages the premium, interest, and principle in many mortgages have all been decoupled and sliced and diced and how on earth do you sort that out? It is easy enough with the simple mortgage to decide a course, but that other concoction should never have been allowed to happen. Perhaps better to guarantee the new mortgages and regulate and start to build a base from there as it will take a long time to sort out the other mess.


rockyracoon

Thank for the observation.

EvotingMachine0197 wrote:

Slim what is the translation of Börsengang and Börsenbeben ? Thay are not in my dictionarys?

"Börsengang" usually refers to a company's appearance on the stock exchange. It may have another meaning depending on the context.

"Börsenbeben" is a part-combination word combining Börse and Erdbeben (earthquake) to give us "Stock exchange earthquake".

No such legal action will be successful, there are several reasons why.

First, it is possible to bring an application for sanction resulting from fraudulent trading against a director - provided you are a shareholder or creditor. If successful there are several consequences which can result: (i) Directors can be held collectively and personally liable for all the debts of the company (ii) Directors can face a criminal sanction either summarily or on indictment (iii) Directors may be disqualified from acting as a director for between 5 and 10 years. Options (ii) and (iii) are possible but option (i) will never be a runner, even if it might seem appropriate! In such cases where option (i) has been applied they are more punishments to the directors than an actual reimbursement of the damage done. Besides which the damage is owed to the company, rather than the creditor and there is always someone ahead of the unsecured person on the street who will claim that reimbursement!

Secondly, the reason why none of these cases will get off the grounds is the the 'floodgates' consideration which is applied by the courts in any situation. A prime example of this, in tort law, is the cases which were mounted by the families of the victims of the Hillsborough Disaster. In this instance the House of Lords (Law Lords) took a public policy decision that none of these claims could succeed. The reason for this was not based on the individual merits of their cases but rather owing to the knock on effects of recognising their right to compensation. It was the opinion of the Law Lords that if they were to recognise the claims it would have such an effect on insurance premiums that the provision of public sporting activities would no longer be economically viable.

It is based on the floodgates argument that none of these claims will be successful - regardless of their merits. If they were to be recognised there is literally hundreds of thousands of people who could mount equally meritorious claims and for that reason the courts will not recognise them. They see non recognition as the lesser of two evils.

Whether that is good or not is a different matter.

cactus flower wrote:

Rockracoon - I have been reading about the Euribor rate. What is it and how does it hit Main Street?

It is based on European inter bank rates and will dictate mortgage rates etc etc. .

cactus flower wrote:

They are saying the credit card debt is now beginning to default in the US. I can see a general default coming. Stock up the larders lads.

On another thread I mentioned that it may be that it is not mortgages that are causing the problem but levels of overall debt. Payments on car lease, credit cards etc can for some be comparable to the mortgage. Too much attention on sub prime and not enough on too easy credit at high rates of interest.

Squire wrote:

cactus flower wrote:

Rockracoon - I have been reading about the Euribor rate. What is it and how does it hit Main Street?

It is based on European inter bank rates and will dictate mortgage rates etc etc. .

cactus flower wrote:

They are saying the credit card debt is now beginning to default in the US. I can see a general default coming. Stock up the larders lads.

On another thread I mentioned that it may be that it is not mortgages that are causing the problem but levels of overall debt. Payments on car lease, credit cards etc can for some be comparable to the mortgage. Too much attention on sub prime and not enough on too easy credit at high rates of interest.

I agree with you Squire. Sub-prime, if that was the only problem, could be solved.

cactus flower wrote:

Why would anyone buy into it? Is there any kind of government guarantee attached?

Rockracoon - I have been reading about the Euribor rate. What is it and how does it hit Main Street?

They are saying the credit card debt is now beginning to default in the US. I can see a general default coming. Stock up the larders lads.

Libor/Euribor - Libor = London inter-bank offering rate. The maturties for Libor are from 1 day to 5 years, I believe. They are rates used by banks to lend to other banks. (One bank has excess cash, so it lends to another banks who has a temporary cash short fall). The immediate significance is that these rates have been rising dramatically over the last 2 weeks. The upshot - the banks are not willing to lend to each other except at heavy rate premiums. If banks aren't willing to lend to each other, and hence are hoarding their cash reserves, they aren't going to lend to businesses too easily. Again, they'll lend to businesses but at historical rate premiums that businesses aren't used to or can't meet.

There is a secondary effect. Because, historically, Libor was such a stodgy rate that kept within well defined limits of the BOE set interesst rate, the US Bankers (who else) started using this rate as a benchmark for their adjustable rate mortgages. They'd take Libor and and a few percentage points on top to price a new adjustable rate mortgage for their customers - usually on a 1 year rotating basis. So, the possible rate adjustment of US mortgage borrowers is going up as the Fed funds rate drops!

CDS = Credit Default Swap - simply insurance that if a bond you hold (say IBM bond for $10,000) can't be paid by the issuing company (IBM), you get your money back on the principle ($10,000). Good idea. But! Many investment banks, hedge funds and others began to use these instruments to bet on the solvency of the issuing company without ever having bought the actual bonds. Because there is no open market auction mechanism (ISEQ, FTSE, etc.), the transactions were done over the phone and no-one at any one time can price the insurance policy. There is no transparency.

Today the Fed, I believe, is holding the first auction on CDS. Currently Lehman bonds are trading at about .13 cents on the dollar. By implication, the cost of CDS insurance would be .87 cents on the dollar.

There about 350 companies registered for this auction. The hope is that they bid down the price of the CDS insurance below .87 cents, and by implication make the bonds rise in price.

Anyhow, this will give all banks, insurance agencies, hedge funds, and private citizens the first glimpse of what distressed bonds are worth and show the amount of naked betting that has gone on in the CDS market.

However, the more distressed WaMU debt comes to market next week. So even if Lehman's auction goes well, the story isn't over. Future investors want to know how stable and well priced the balance sheets of Citigroup, Morgan Stanley et. al. acutally are. These auctions might help investors begin to visualise what write down need to occur in the future; how much re-capitalisation needs to take place; and how these derivative assets are really worth in the long run.

The fun and games begin today. Imo, the investment community has been erroneously valuing nearly all assets across the world from currencies, to equities to bonds, etc. We are witnessing the re-evaluation of the entire asset base of the globe. It will be messy. Once the new prices begin to emerge with time, and given that new regulations and mechanisms for pricing are enacted and adhered to across the globe, we'll see a return of confidence to the markets.

Isn't going to happen overnight.

gl all

johnfás

It is not investigation to recover lose that is needed but a criminal investigation. As far as I know a number of directors in a company that said gentleman had an interest in have been convicted.

The question in this case is was the inaccurate ratings merely incompetence? Following on from that what was the duty of care and were they acting within the scant and oft ignored regulatory framework.

If you want to clean it up you have to start somewhere. I would be inclined to find some excuse to get a few forensic accountants in! You have to hit the key players who were responsible in creating this mess and investigate their activities. Credit rating seems to me a good place to start.


rockyracoon

Very interesting post.

cactus flower wrote:

Squire wrote:

cactus flower wrote:

Rockracoon - I have been reading about the Euribor rate. What is it and how does it hit Main Street?

It is based on European inter bank rates and will dictate mortgage rates etc etc. .

cactus flower wrote:

They are saying the credit card debt is now beginning to default in the US. I can see a general default coming. Stock up the larders lads.

On another thread I mentioned that it may be that it is not mortgages that are causing the problem but levels of overall debt. Payments on car lease, credit cards etc can for some be comparable to the mortgage. Too much attention on sub prime and not enough on too easy credit at high rates of interest.

I agree with you Squire. Sub-prime, if that was the only problem, could be solved.

Indeed. If only. Here is an English-language CDS article to compliment the German one I posted above

http://www.time.com/time/business/article/0,8599,1723152,00.html

This is unsettling, to say the least.

Rocky wrote:

Today the Fed, I believe, is holding the first auction on CDS. Currently Lehman bonds are trading at about .13 cents on the dollar. By implication, the cost of CDS insurance would be .87 cents on the dollar.

So if the CDS market is worth 45 Trillion Dollars, and they are now worth only .13 on the dollar, who is going to pay the insurance on the difference ? 87% of 45 Trillion ?

well, lots of the counterparties have collapsed so i guess there are a lot of completely worthless credit default swaps out there.

zakalwe wrote:

well, lots of the counterparties have collapsed so i guess there are a lot of completely worthless credit default swaps out there.

http://www.cnbc.com/id/27097823

This guy says buy "agricultural holdings". If I may be allowed a youngdan moment , this is what I have been saying since this site was set up.

EvotingMachine0197 wrote:

Rocky wrote:

Today the Fed, I believe, is holding the first auction on CDS. Currently Lehman bonds are trading at about .13 cents on the dollar. By implication, the cost of CDS insurance would be .87 cents on the dollar.

So if the CDS market is worth 45 Trillion Dollars, and they are now worth only .13 on the dollar, who is going to pay the insurance on the difference ? 87% of 45 Trillion ?

That's only Lehman bonds and they are in liquidation prodecedings. We'll get an idea how much they fetch today. There are many legitimate CDS contracts written which cover bonds that exist and have values that far exceed .13 cents.

The immediate problem with the CDS market isn't only to do with valuation. The main problem is naked positions. I've bought or sold insurance on company "x" but I don't own their bonds. Basically, I could have gone down to a bookies and placed a bet on a company's solvency instead of using a CDS. It's these "uncovered" or "naked" positions that are largely an unknown element right now. After today, we'll begin to get an idea how much of this CDS market actually insured real assets (bonds) and how much was just plain gambling.

A wee glimmer of light, a sliver of silver edged cloud? The Libor and Euribor spot rates have eased. This means that banks are becoming more willing to lend to each other overnight.

However, the 3 and 6 mos futures are still heading up which indicates that the banks may not be willing to lend to each other for more than one night. Still some progress, and the CBs are pumping money into various short term loan facilities in order to keep businesses afloat.

All is not lost.

Also about 15 mins ago the IFIN (Irish Financials) was actaully up and the ISEQ is bucking the global equities trend and trying to go into positive territory! Must be feeding steriods to the Irish traders now.

Noticed the ISEQ is actually performing better than the rest of Europe, well for a few hours anyway. See how Wall Street opens.

Well it is performing better today. The Irish stocks have taken a much greater hit over the past 7 days so perhaps they are just nearer their bottom than other exchanges.

USA now getting in on the bank guarantee act. Where Cowen leads, all others follow.

rockyracoon wrote:

However, the 3 and 6 mos futures are still heading up which indicates that the banks may not be willing to lend to each other for more than one night. Still some progress, and the CBs are pumping money into various short term loan facilities in order to keep businesses afloat.

All is not lost.

The overnight rate is about 2.2% and the 3 month about 5.5.%; this is a bit of wriggle room for them surely but it's spinning on a dime and pulling themselves up by the bootstraps. The FTSE 100 CAC and Dax all down around 8% and Dow Futures down 3%.

Slim Buddha wrote:

USA now getting in on the bank guarantee act. Where Cowen leads, all others follow.

Into the valley of death rode the ten thousand ...


Nothing they do will allow them to control the markets. The markets have entered a rapid phase transition which is signalled by chaotic behaviour. If they really want to know what is going on then they need to dump the language of eighteenth century economic theory and realise that they need to employ people with a knowledge of multidimensional non-linear mechanics, combined with a knowledge of quantum-coupling effects in computing, combined with a knowledge of zero branes, leading to a knowledge of the audio-graphics of Higher-Dimensional Real Spaces. Of course there are only a very few people around who can combine those talents with utmost modesty.

Funny I was thinking about resonance. One soldier marches across a suspension bridge no problem. Get a regiment doing it and it had better not be designed by the engineers responsible for the London Millennium Footbridge.

If you compare all the graphs they all bounce up and down in unison.

I was also wondering who in their right minds would risk a cent in these markets? You can have several 10% shifts each way before morning tea break. Definitely not a place for money you may need.

Berlusconi talking about European markets shutting down while he and other luminaries discuss a new Bretton Woods arrangement.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aP5mpMUORBWM&refer=home

I can't see the US giving up an in-built advantage in the IMF, effectively the power of veto.

Slim Buddha wrote:

Berlusconi talking about European markets shutting down while he and other luminaries discuss a new Bretton Woods arrangement.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aP5mpMUORBWM&refer=home

I can't see the US giving up an in-built advantage in the IMF, effectively the power of veto.

Bloomberg is reporting that the G-7 Officials Say No `Harmonized' Response to Credit Crisis though they seem to be considering the UK plan to guarantee inter-bank lending but generally it's individual responses from each country

Quote :

Former Federal Reserve Chairman Paul Volcker urged that ``all of them now admit or all of them own up to the fact their own banks are going to need support,'' in an interview with PBS Television's Charlie Rose show yesterday.

The G-7's dilemma is that even after a battery of policy actions, money markets remain gridlocked as banks shun lending to each other for fear they will lose the money or because they need it themselves. The cost of borrowing dollars for three months in London today rose to its highest this year and the rate in Tokyo jumped to the highest since 1998.

Darling wants countries to guarantee lending between banks, either by turning central banks into clearing houses for the loans or having governments back them. That would ``be an effective way of easing the crisis,'' said Marc Chandler, head of currency strategy at Brown Brothers Harriman & Co. in New York.

Fratto said today ``we're reviewing'' the U.K. proposal. Treasury Secretary Henry Paulson two days ago stopped short of endorsing the plan when asked about it in a press conference.

It will probably be a while before they decide to take 'harmonized' action - one thing could be the relationship of the dollar with oil - is the fall of the oil price reflecting anticipation of a dramatic fall in demand because the Americans will be having to pay more? The collapse of GM shares might also hint at this.

Slim Buddha wrote:

Berlusconi talking about European markets shutting down while he and other luminaries discuss a new Bretton Woods arrangement.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aP5mpMUORBWM&refer=home

I can't see the US giving up an in-built advantage in the IMF, effectively the power of veto.

Nouriel Roubini, who called this correctly since 2006, is suggesting a plan of action that seems to involve bailing out everyone and everything, everywhere. He just doesn't mention how it is all to be paid for.

http://www.rgemonitor.com/blog/roubini/

*post by Auditor #9 above*

Lehman 91.38 Cents to the Dollar

http://www.bloomberg.com/apps/news?pid=20601103&sid=aLkOZnNcDmSQ&refer=news

Squire wrote:

Lehman 91.38 Cents to the Dollar

http://www.bloomberg.com/apps/news?pid=20601103&sid=aLkOZnNcDmSQ&refer=news

Quote :

Based on the results, sellers of protection may need to make cash payments of more than $270 billion, BNP Paribas SA strategist Andrea Cicione in London said. The potential payout is higher than the 90.25 cents indicated by initial results from the auction earlier today. Lehman bonds traded yesterday at 13 cents on the dollar, suggesting a payout of about 87 cents was expected.

No one knows exactly how much is at stake because there's no central exchange or system for reporting trades. It's that lack of transparency that has increased the reluctance of financial institutions to do business with each other, exacerbating the global credit crisis and prompting calls for regulation of the market. More than 350 banks and investors signed up to settle credit-default swaps tied to Lehman.

Now someone has to pay investors who lost out in Lehman's about 270 billion dollars but they're not sure how much or who or anything? What a mess. And there are other institutions like this in such trouble too.

What a pile of steenking sheet.