Well the collapse of such an institution would be about 70% as difficult if it were straight forward anyway! Dealing with the collapse of even the most innocent investment bank isn't exactly like liquidating the assets of the local green grocer.

from Wednesday

The Modern Mystic refers to the flight of capital into Treasuries to such an extent that Treasuries are becoming useless, yielding nothing. He also believes the Fed has started 'monetizing' - printing money. Zimbabwe ahoy.

Does the Modern Mystic have a map to the Buried Treasure?

That could be useful.

One last one (today) from the Modern Mystic. He's talking about Credit Default Swaps and how they are going to kill Citigroup, Bank of America and J.P.Morgan and bury them under 50 trillion of debt unless 1000 years of contract Law are ignored and the paper torn up.

Where's he from, this guy?

He's from under the bunk bed by the looks of it.

DOW closed about 1.5% down. A bit of a recovery in the afternoon. Gold down about 7% Silver down more. Quirky day; looked like a flight to currency in the morning. Strong Yen and dollar strengthened but DOW rallies in afternoon.

EDIT ADDED

Have a look at the price of building metals over this last year (call up a graph) Lead, copper, aluminium, steel

http://www.lme.com/copper_graphs.asp

Sure sign of recession.

Auditor #9 wrote:

One last one (today) from the Modern Mystic. He's talking about Credit Default Swaps and how they are going to kill Citigroup, Bank of America and J.P.Morgan and bury them under 50 trillion of debt unless 1000 years of contract Law are ignored and the paper torn up.

Where's he from, this guy?

He may be right to an extent on the Credit Default Swaps market. This market is unregulated, unregistered, unmonitored and is, in effect, a financial black hole the dimensions of which the most knowledgable experts can only guess at. Barclays and the Royal Bank of Scotland both alleged to have $2.5 trillion exposure to this if it goes toxic.

There is something going about today saying Barclay's exposure is not as bad as thought, but who is to know? It seems to me that until all this unknown and unknowable paper is popped onto a bonfire of the vanities there can't be any certainty or confidence in the market. But would such a bonfire consume us all?

cactus flower wrote:

There is something going about today saying Barclay's exposure is not as bad as thought, but who is to know? It seems to me that until all this unknown and unknowable paper is popped onto a bonfire of the vanities there can't be any certainty or confidence in the market. But would such a bonfire consume us all?

Yes.

Slim Buddha wrote:

cactus flower wrote:

There is something going about today saying Barclay's exposure is not as bad as thought, but who is to know? It seems to me that until all this unknown and unknowable paper is popped onto a bonfire of the vanities there can't be any certainty or confidence in the market. But would such a bonfire consume us all?

Yes.

Sorry cactus, little time 2 hours ago.
Yes, the implications of the credit default market jitters are very real. If mystic man is right, and the Bank of America, Citicorp and JP Morgan are loaded up with CDS toxic paper, it requires only a few banks/insurance companies (like Yamato on Thursday) to vanish and the knock-on effect could be catastrophic. Since every failing institution is likely to have "X" amount of CDS paper, there are counterparties who are hit when the institution fails, draining the remainlng "living" institution of liquidity. As CDS paper is linked to corporate bonds, and some corporate bonds are little more than junk bonds (for example General Motors), major corporate failures in the non-financial economy become a very real possibility.

Here's KAL's take on the whole bail-out panjandrum in this week's Economist...

Slim Buddha wrote:

Slim Buddha wrote:

cactus flower wrote:

There is something going about today saying Barclay's exposure is not as bad as thought, but who is to know? It seems to me that until all this unknown and unknowable paper is popped onto a bonfire of the vanities there can't be any certainty or confidence in the market. But would such a bonfire consume us all?

Yes.

Sorry cactus, little time 2 hours ago.
Yes, the implications of the credit default market jitters are very real. If mystic man is right, and the Bank of America, Citicorp and JP Morgan are loaded up with CDS toxic paper, it requires only a few banks/insurance companies (like Yamato on Thursday) to vanish and the knock-on effect could be catastrophic. Since every failing institution is likely to have "X" amount of CDS paper, there are counterparties who are hit when the institution fails, draining the remainlng "living" institution of liquidity. As CDS paper is linked to corporate bonds, and some corporate bonds are little more than junk bonds (for example General Motors), major corporate failures in the non-financial economy become a very real possibility.

On our left (note symbolism) we have a real economy, with people working and making and selling the things that people need and can afford to buy, and on our right we have a vast accumulation of possibly irretrievably obscure paperwork, electronic data, a lot which may be worth nothing. An example would be the Bonds sold to the Credit Unions here, that turned out to have no date at which they could be cashed in.

I spent some time writing a post in which I talked about a couple of alternatives for government action, then I deleted it, because this is playing out so fast now that I think it is probably at this stage well beyond the reach of rational solution. Governments should imo not be throwing everything at the markets, they should be saving resources for picking up the pieces when the thing has bottomed out and the dust settled. The chances are that "liquidity" money is just being sucked straight out of the system and stashed away by the wide boys.

cactus flower wrote:

Slim Buddha wrote:

Slim Buddha wrote:

cactus flower wrote:

There is something going about today saying Barclay's exposure is not as bad as thought, but who is to know? It seems to me that until all this unknown and unknowable paper is popped onto a bonfire of the vanities there can't be any certainty or confidence in the market. But would such a bonfire consume us all?

Yes.

Sorry cactus, little time 2 hours ago.
Yes, the implications of the credit default market jitters are very real. If mystic man is right, and the Bank of America, Citicorp and JP Morgan are loaded up with CDS toxic paper, it requires only a few banks/insurance companies (like Yamato on Thursday) to vanish and the knock-on effect could be catastrophic. Since every failing institution is likely to have "X" amount of CDS paper, there are counterparties who are hit when the institution fails, draining the remainlng "living" institution of liquidity. As CDS paper is linked to corporate bonds, and some corporate bonds are little more than junk bonds (for example General Motors), major corporate failures in the non-financial economy become a very real possibility.

On our left (note symbolism) we have a real economy, with people working and making and selling the things that people need and can afford to buy, and on our right we have a vast accumulation of possibly irretrievably obscure paperwork, electronic data, a lot which may be worth nothing. An example would be the Bonds sold to the Credit Unions here, that turned out to have no date at which they could be cashed in.

I spent some time writing a post in which I talked about a couple of alternatives for government action, then I deleted it, because this is playing out so fast now that I think it is probably at this stage well beyond the reach of rational solution. Governments should imo not be throwing everything at the markets, they should be saving resources for picking up the pieces when the thing has bottomed out and the dust settled. The chances are that "liquidity" money is just being sucked straight out of the system and stashed away by the wide boys.

At the core of this is the fact that deregulation has enabled the financial engineering wonks to develop financial products so opaque that the majority of their co-employees in investment banks and insurance corps have no idea what the are and how they work. Very few people, least of all in governments, have a clue about the size of the credit default swaps market. Considerably less know the size of the possible level of default on those swaps. This has the capacity to destroy whole economies to the extent that what happened in Iceland last week will be like a minor bout of flatulence in a Hurricane Katrina-style occurrance.

Next week will be interesting.

Iseq making another shaky start today.

Quote :

The EU Commission has approved the Government's €400bn guarantee that covers six Irish-owned banks and five foreign-owned financial institutions.

The announcement came as Taoiseach Brian Cowen returned from Paris where EU leaders had agreed on a big funding programme for banks and businesses.

Under the programme governments can use taxpayers' funds to put new capital into the banks, either by buying bank shares or debt instruments issued by the banks.
Advertisement

It is the biggest move yet by European countries to mount a co-ordinated, system-wide effort to beat the credit crisis and Eurozone countries have agreed that they can do virtually anything to prevent bank failures.

Countries can now invest in bank equity to improve tier one capital rations and can buy up, insure or guarantee debt instruments issued by banks.

Eurozone countries can now take 'toxic assets' as collateral for government bonds.

Europe-wide MABS on the way.

Quote :

Governments have also encouraged the European Central bank to start lending directly to big businesses through a commercial paper market, hoping that if big businesses get finance they will use it to pay the small businesses that supply them, boosting the flow of cash.

They also want a suspension of the so called mark-to-market accounting rules to try and halt the slide in the value of bank assets.

It will be up to each country individually to decide on which measures, if any, are needed.

Elsewhere, the British government has announced a plan to buy shares in the country's banks to help shore up their balance sheets.

Under the scheme the government will take a 60% share in the Royal Bank of Scotland, worth £20bn, and around 40% of the combined bank which will be formed by the amalgamation of HBOS and Lloyds TSB.

The amount of money the British government is putting into RBS and HBOS is more than they are currently worth after last week's losses on the markets.

Barclays said it will not have to turn to the government for emergency recapitalisation and will be raising £6.5bn from investors but will not be paying a final dividend for 2008, saving the group £2bn.

Meanwhile, Royal Bank of Scotland CEO Fred Goodwin has stepped down as RBS looks to recover from the credit crunch.

Markets have opened up today which is to be expected but with the uncertainty 'who knows' any more.

Not at all sure how long this mood will last. All I know is when business I am involved with needs to send someone out East to move money or bits of metal around that this cease up is spreading.

Credit default swaps, other derivatives and hedge funds all need regulated.

To me if it is grey, has big ears, four legs, a trunk and can knock a tree over it is an elephant. To me insurance is insurance if called a swap or pixie dust. To me there is clear breach of regulation and fraudulent trading and that needs to be investigated. Imagine for one moment trying to tell the revenue that, "look gov it is not income it is just a swap." Can anyone see that working? You would be down in court quicker than your feet could move. The fact that this was allowed to happen shows the state of regulation in the financial sector and how regulation and law is applied differently to the various stratums of society.


EDIT
AUDI
I think it is the financials that are the volatile sector yet again. Some of them need to disappear but that guarantee!

Slim Buddha wrote:

At the core of this is the fact that deregulation has enabled the financial engineering wonks to develop financial products so opaque that the majority of their co-employees in investment banks and insurance corps have no idea what the are and how they work. Very few people, least of all in governments, have a clue about the size of the credit default swaps market. Considerably less know the size of the possible level of default on those swaps. This has the capacity to destroy whole economies to the extent that what happened in Iceland last week will be like a minor bout of flatulence in a Hurricane Katrina-style occurrance.

Next week will be interesting.

What I find particularly interesting about this is that loans are down as assets on bank balance sheets....not liabilities. So if our banks say they have 500bn in "assets", what precisely does this mean??

The only thing I can find to be optimistic about.... and mark my words, I suspect this is important... is that domestically, our own biggest problem has to do with toxic loans to builders, rather than the imaginary value of bits of paper such as mortgage bonds, SIVs, etc. Yes, the CDS problem is probably affecting everyone, which is why all Governments have agreed to not let anyone go down. Stops the rot.... if the bailouts work.

The good thing about bad loans to builders is that the sites and houses and land borrowed against exist in the real world and would have some sort of value to receivers etc, even if they aren't worth half what was borrowed to buy them. That site in Ballsbridge, for example, may not be worth 500 million, but I bet when the dust settles, someone might pay 100-200 mill for it. The empty houses can be bought by our government at a snip, if they wait a few months, and can be used to settle the housing queues

The problem with the big financial centres is that a lot of the "assets" are toxic, and there is no intrinsic value in many of the bits of paper being circulated. I suspect we'll find that our problems, once the dust settles, may not be as bad as those experienced by some of our neighbours. Pity the Brits... the city is 20% of the economy and they had a huge national debt to start with... the Torygraph yesterday said that with PFI, it is running into trillions... and I don't know what's up with the Germans.... they didn't have a housing bubble and their banks are still in trouble.....and they started with high unemployment.

Squire wrote:

EDIT
AUDI
I think it is the financials that are the volatile sector yet again. Some of them need to disappear but that guarantee!

Those banks need to be squashed together in a smaller pile don't they and the market senses this. With this guarantee we're pointing a gun at our own foot aren't we.

Expat

It is just the usual of any business balance sheet. Money owed to you is an asset money you borrow the opposite. So for a bank deposits are liabilities and loans are assets.

On the toxic asset end of things your point is sound. One of the problems at the minute is that there simply is an abnormal housing market. When only those with very good credit and 25% deposit get a mortgage or others get one (possibly) at ridiculous rates of interest then to me that is hardly normal. I do think house prices need to come down but right now there is no flow. You can't sell. It doesn't mean that there is no demand just no money in circulation. It is ceasing up.

How on earth do you value these assets? If you dump them on the market they sit. They can't be sold. I have by accident ended up, with a growing number of others now trying to put some values against these assets and help arrive at rational decisions, and ensure income. IMHO the housing market in Britain (where I by chance happen to be just now) is not as bad as many think. The big problem in the domestic sector is not necessarily mortgages but overall levels of debt. Car leases, credit cards etc. It is probably the same in Ireland.

Many of the mortgages are also old and much of the property is owned by the occupier. I think this problem is manageable and the coming interest rate drops will help many. If a Bank has this sort of uncluttered debt (assets) then it should get through. If it is sliced and diced into all sorts of strange beasts, or the Bank has bought into such or guaranteed the same, then all bets are off.

The real black hole (in uncluttered) I see is the small time developer, buy to let group; utter disaster. Many were relying on property values to increase to save them from their own incompetence. They will be letting at a loss for the rest of their lives or will be forced to sell at a loss. Many will go under.

I am more interested in the larger schemes. Many are sound enough. There are a few exceptions but generally they are not as reckless as everyone is lead to believe. The problem is the land was so expensive that you now can't build and sell without incurring loss. A good few may just about scrape through if construction contracts etc are renegotiated and contractors are short of work and material costs falling. But the problem is if they complete can they sell even at a sharply reduced asking price? There is no market and the longer they sit the more the interest builds. Basically you need to find clients to purchase in advance and that is not as daft as it initially sounds.

On that front I am not unduly pessimistic but the slow cease up that is spreading worries me. Serious recession ahead. On the UK economy the bigger problem is levels of government borrowing and sterling. If Ireland were outside the Euro zone it would now be in the same boat as Iceland.

Auditor #9 wrote:

Those banks need to be squashed together in a smaller pile don't they and the market senses this. With this guarantee we're pointing a gun at our own foot aren't we.

Audi I am all for competition but really do we need so many banks and building societies? I would be a lot happier seeing fewer modest establishments doing what I think banks should do. They should act as a service to the local community. Forget the nonsense and gambling just take money in and lend money out, simple. Leave the exocotoc to those who want to specialise in that type of life style. If banks have to merge I think the government is off the hook, but if one fails then I am afraid the Irish tax payer will be faced with loss.

Up and down like a yo yo, above and below 3000.

Squire:

Unsecured debt... I think the Brits are a lot worse than the Irish. We may be more mortgaged, however.

I am beginning to think (grrr!) that if we want to save any sort of competent construction sector out of this AT ALL, we may need some sort of advance purchase scheme for a few developers... might be best to pick those that were solvent before this months crisis so as not to reward the incompetent. The likes of Sean Dunne and that Ballsbridge site deserve what is coming to them.

The British government debt is what really scares me. The Torygraph referred to official figures as fiction and are suggesting that with PFI, the total is much higher again. Back 2 years ago, the Guardian calculated debt as 87% GDP including PFI and they are about 150billion more in the red than their predictions for this year. At what point do they become simply unable to bail out their banks??

As for Ireland, we may have been in the same boat as Iceland, but maybe not. It has been argued that the property boom and crazy lending was fuelled by low Eurozone interest rates... we could have put ours up and might have been less indebted collectively if the property boom had been halted in its tracks 5-6 years ago. Having said that, though, I'm pro EU and pro Eurozone in general. One undervalued aspect of this crisis is that it does co-ordinate all Eurozone nations at the same point in the economic cycle... might be useful in the future.

On the downside, this crisis means that the symptoms have to be treated before the cause......there will be no resumption of economic growth without freer availability of cheap energy, and money is not available at the moment (at least not in the scale required), to enable fossil fuel reduction programmes to take off. Meanwhile, there are worries that both Irish and UK grids will have problems meeting demand in the near future; the UK situation is particularly serious as the 10 nuclear power stations are increasingly decrepit and it will take ages to replace them.

At the very least, both governments need to deal with the Nimbys who are preventing building of CHP turf plants, the Corrib gas refinery, the Kingsnorth coal fired power station etc.

The economy needs rolling blackouts right now like a hole in the head. There will be NO resumption of economic growth until the energy situation is sorted out, and demand would have to come down a long way to get us back to $10 per barrel.

Expat

I am also totally convinced that we need to invest in energy production.

Anyway good spread of green on European markets. Wonder how long it will last? FTSE100 about 4% up to ATX 10%

http://au.finance.yahoo.com/intlindices?e=europe

Iseq is up just under 3%.

Yaay! Waterford up 100% ! Fyffes up 17%

Blackrock up 30% !!!

Newcourt up 36% !!!!

http://www.sharewatch.com/iseq.php

Looks like another solution is biting the dust

www.ise.ie says "2,942.47 up 71.22 points".

Perhaps the graphic doesn't show the initial jump where the exchange starts the day from a higher position than it closed at?