The Fed seem to be issuing billions to the European banks in the interests of "liquidity". My brains are buffering all the recently acquired economic information and won't really process this properly. Why are the Fed pushing the cash at us ?

**cactus above

The banks borrow from each other so ... when I have a loan with them and they call in my loan then they are not making enough from my interest so they want to plug it up.

Shouldn't a constant and steady stream of income be good enough for them though - why would they want a lump of capital there all of a sudden? Is it to invest in other businesses? Don't businesses often issue stock when they are expanding so as to finance the new bit?

Auditor #9 wrote:

**cactus above

The banks borrow from each other so ... when I have a loan with them and they call in my loan then they are not making enough from my interest so they want to plug it up.

Shouldn't a constant and steady stream of income be good enough for them though - why would they want a lump of capital there all of a sudden? Is it to invest in other businesses? Don't businesses often issue stock when they are expanding so as to finance the new bit?

They want it back to plug the hole left when somebody else defaulted.

I explained those currency swaps to you already.

youngdan wrote:

I explained those currency swaps to you already.

You did and it's here in the Economic Jargon Thread

youngdan wrote:

I am an options player. Most trades are complete losses but if you get a big win it might be 20 times.

I will explain what Credit Default Swap is. A person buys a bond off a company. He is in fact lending the company money and the company will pay him back monthly for say 10 years. Principle plus interest. If he holds for 10 years his only worry is that the company will fold and default on the bond. So Credit Default means the bond defaulting and becoming worthless.

To cover this possibility he can pay a bit extra to an insurance company to insure the bond. Then if it defaults the insurance company will pay the remainer of principle and interest.

This is the "swap" part. The risk of default has been swapped from the buyer to the insurance company. These CDSs can be traded back and forth and their value changes if the risk of default rises or drops.

Had AIG gone bankrupt then a lot of bonds would no longer have insurance. The greater the risk the higher the premium. The CDS SPREAD is the premium or the difference between what the bond pays, say 8% and what must be paid when the premium is added, say 8.6%. The CDS Spread is 0.6%

I say another poster today say that CDS Spread on US Treasuries was .3%. This is very high as one would think that the chance of default would be practically zero. When I checked it Monday it was .18 having risen from .06.

This is alarming as it indicates that the market thinks that the chance of a US default on it's bonds is 5 times greater than it was a while back

These credit default swaps are traded in the futures markets. In the futures market you are not trading the swaps themselves but a CONTRACT to buy a certain quantity of swaps at a stated price at a stated date.

Let me explain LEVERAGE.

If for example the contract price is 100 then whatever is being traded, whether it is wheat, gold or swaps must have increased in price above 100 for your contract to buy it at 100 has any value. If the underlining commodity is say at 90 you might be able to buy a contract to buy at 100 for 2 dollars in say 6 months time. You can sell your contract at any time and it's value fluctuates but lets say you hold it till your time is up. If the commodity is priced at 100 or less you lose everything. If the price is 101 you lose 50% because you paid 2 dollars for something worth 1 dollar. At 102 you break even. At 110 you made 5 times your money. Remember though the lad that sold the contract. He is the COUNTERPARTY and he is out 5 times his money. If he does not have the commodity to sell to the winner he pays the money to buy back the contract at 10 dollars. If the winner demands the commodity it is called TAKING DELIVERY and the loser must go into the market, buy it and deliver it to the winner. This can lead to a short squeeze which further drives up the price.

So you can make 5 to 10 times your stake if you are right. However the real leverage come in because in the futures market you only need to have 5% down for your contract. For a buyer it means that your stake can be totally lost with a 5% movement but for a lad that sold the contract his loses continue at 20 times the contract price which itself might be changing 5/10 times the speed of the commodity. So the leverage could be 100/200 times total.

The value of the contract DERIVES from the value of the commodity and that is why they are called DERIVATIVES

Serious gambling and the potential for instant death.

WaMu and this deal in whatever form raise some serious issues, regarding intervention, investors rights and using tax payers money or the printing press. Looks like a deal with fig leaves. I really don't see a good reason why they don't allow companies to simply go into receivership.

If you can not see why they don't want a slew of bankruptcy then I don't know what to say.

Surely to Jesus you don't think Paulson is the Treasury Secretary.

youngdan wrote:

If you can not see why they don't want a slew of bankruptcy then I don't know what to say.

Surely to Jesus you don't think Paulson is the Treasury Secretary.

YoungDan of course I can see what they are about and a fair idea why. That's what is so amazing about it, it isn't even well hiden or subtle. It smacks of desperation and they have a real cheek. You wouldn't go to someone offering that deal blind, you would have to know in advance that you had considerable support in your pocket. Imagine trotting in blind! No impossible. That's why I say that I can't see any good. It stinks and I am amazed that there isn't a right uproar.

In the third world political support can be about a good 10% into a Swiss Bank account, but then their politicians have a certain dependable intelligence. What next third world currency and economy?

WaMu should worry any investor. It should unnerve the markets if there is any sense left.

Squire wrote:

youngdan wrote:

If you can not see why they don't want a slew of bankruptcy then I don't know what to say.

Surely to Jesus you don't think Paulson is the Treasury Secretary.

YoungDan of course I can see what they are about and a fair idea why. That's what is so amazing about it, it isn't even well hiden or subtle. It smacks of desperation and they have a real cheek. You wouldn't go to someone offering that deal blind, you would have to know in advance that you had considerable support in your pocket. Imagine trotting in blind! No impossible. That's why I say that I can't see any good. It stinks and I am amazed that there isn't a right uproar.

In the third world political support can be about a good 10% into a Swiss Bank account, but then their politicians have a certain dependable intelligence. What next third world currency and economy?

WaMu should worry any investor. It should unnerve the markets if there is any sense left.

There is an uproar Squire. People are demonstrating across the country and the economists are speaking out. Politicians generally listen more to the rich than the poor. The poor have to shout louder.

FTSE 100 down over 4% to just below 5000. ISEQ down about 5% DAX down just under 3%.

Wonder where Wall Street will head when they open. Tends to influence the ISEQ in the afternoons. I can't imagine the proposed deal being that popular thought there will be more spin merchants than stars in the sky.

Trend is still down. Bear market has a while to run yet.

It is now at 3500 that is a drop this morning of about 280.

Squire wrote:

It is now at 3500 that is a drop this morning of about 280.

Would that be the financials or is it everything I wonder?

cactus flower wrote:

Squire wrote:

It is now at 3500 that is a drop this morning of about 280.

Would that be the financials or is it everything I wonder?

That's the overall ISEQ index. Although the financial index is down more! Some 500+ points. I fully expect these large down swings to be offset by equally large upswings as the US passes its bailout package. However, the severe downswing seems to be taking into account the contagion in Europe now publically acknowledged by officialdom.

The question is whether the markets have or are already pricing in the recessions in the UK, Spain and the possible impending recession in Germany. Get this analysis correct and riches will flow lavishly in your direction.

rockyracoon wrote:

cactus flower wrote:

Squire wrote:

It is now at 3500 that is a drop this morning of about 280.

Would that be the financials or is it everything I wonder?

That's the overall ISEQ index. Although the financial index is down more! Some 500+ points. I fully expect these large down swings to be offset by equally large upswings as the US passes its bailout package. However, the severe downswing seems to be taking into account the contagion in Europe now publically acknowledged by officialdom.

The question is whether the markets have or are already pricing in the recessions in the UK, Spain and the possible impending recession in Germany. Get this analysis correct and riches will flow lavishly in your direction.

Financials are down 690 at the minute. The MAIN problem right now is the financials. The package being voted on may have a short term boost, but why would you think that the intervention will encourage you to buy shares in any financial institution? There is plenty of money but zero confidence. If you put in money you could well lose the lot.

Hard to gauge where this floor is going to be and who is likely to end up going down. Very risky market. I think still too early to jump.

Sliding towards 3450 now. Jumping anytime soon might end you up in a grave ... Some bank is going to go again the wall here soon - it's inevitable given the shite happening elsewhere.

Unless that 8 billion deficit ..

There is no confidence in the banking system. Figures of hundreds of trillions are bandied about and nobody knows the extent of the damage. I am coming around to the view that rescues are a disaster, as the only clarity that can dawn in this situation is the moment at which an individual bank or building society closes its doors.

That's not to say that Paulsons slush fund may not tie a few things together for a while with sticky tape. I would feel not. The public mood in the US is too angry to go along with any kind of rescue for the banks that actually could work - or at least the possibility that that is the case must be in the minds of all. The bailout just prolongs the uncertainty.

There is no feeling of government acting in the National Interest.

I feel the only chance is proper nationalisation of banks as they fold along with all their assets.

Squire wrote:

Financials are down 690 at the minute. The MAIN problem right now is the financials. The package being voted on may have a short term boost, but why would you think that the intervention will encourage you to buy shares in any financial institution? There is plenty of money but zero confidence. If you put in money you could well lose the lot.

Hard to gauge where this floor is going to be and who is likely to end up going down. Very risky market. I think still too early to jump.

For the Record! I'll never post about buying or selling a specific, stock, index, commodity, etc. Merely musing about how the stock market works. Today de bears are going wild and have the upper hand. Tomorrow de bulls could come charging in to buy up all these "cheap" stocks. Maybe not.

My position, as an individual trader, is as follows: 100% cash. As you point out, the market volatility is just too extreme, the sentiment bedded firmly in anxiety and uncertainty, and my ability (intellectually and emotionally) too limited to cope with this market environment.

ALSO, I NOTED, AS YOU DID, THAT THE FINANCIALS ARE TAKING A HAMMERING. I THOUGHT THAT THE SHORT SELLING BAN WAS SUPPOSED TO AVERT THIS DOWNWARD PRICE SPIRAL! (enough shouting)

Just watching a video link put up by this site from youtube (kdenninger) about the detail in the proposed bail out bill. Imo, if this fella's right, and I think he is, there maybe a short term upswing (maybe not!) but the whole episode looks bearish to me.

Another very good link (by a US Congressman no less) http://ie.youtube.com/watch?v=9lQr_MFk3_0&feature=related. Makes for a sad prediction of the demise of the US dollar and its economy if the present bail out package is passed as proposed.

gl all

Auditor #9 wrote:

Sliding towards 3450 now. Jumping anytime soon might end you up in a grave ... Some bank is going to go again the wall here soon - it's inevitable given the shite happening elsewhere.

Unless that 8 billion deficit ..

I would agree, it was what I was implying with the, "why would a Bank call in sound loans"!!!

Cactus Flower.

By all means have a Nationalised Bank but only one and let there be competition. What happens if State Bank at some future date really messes up, is the tax payer going to keep bailing it out?

The problem with many of the Financial institutions is insolvency. Some still have sound enough assets and good enough balance sheet others are just plain bust.

It is a chicken and egg situation. I think we need a painful few month and instead of the sell off to buddies approach re capitalise after a proper audit may be a better. People will invest if they have some confidence that they understand the risk.

Do we definitely know that a bank bailout hasn't already been passed under our noses here? I can't believe one of them hasn't gone the way of all slush - perhaps you're very right Squire and their assets are sound.

That sudden jack-in-the-box spectre popup of an 8 billion+ deficit here is troubling though ...

rockyracoon wrote:

For the Record! I'll never post about buying or selling a specific, stock, index, commodity, etc. Merely musing about how the stock market works. Today de bears are going wild and have the upper hand. Tomorrow de bulls could come charging in to buy up all these "cheap" stocks. Maybe not.

It is OK that is what I assumed. We are all musing and I can envisage a herd of beef, but the stampede may well lose its momentum and they may get mauled. Any activity that I have been engaged in has been of the quick in out variety and is less than half hearted.

My own position is I am an opportunist, pure and simple. I had a lot of interest in property and saw what was coming and got out. Have bought and sold all sorts of goods but there is no real satisfaction in buying and selling cement. I like seeing something solid achieved.

Also got out of Dollars Euro and Sterling some time ago. What country has an under valued currency, which are safe currencies? Easy. Take from that my views on western currencies!

Right now I have interests in construction out East. There is real need and no end of apparent opportunity, but hard going with myriad of different traditions and laws. Also if US economy dives it is hard to predict the exact impact on many of these economies.

I have a good opportunity to buy up (with others) a bit of a land bank in the UK. However for us to make our minds up on that requires a crystal ball on property prices say 5 years out, but that is tending to look like a good fall back position unless there is a major collapse. But again uncertainty.

Kdenninger has a good handle on it. The problem is confidence. There is plenty of money about, I am increasingly cash as money generated is not reinvested. You and probably many many others are also largely cash. Our collective wealth would do more than the package proposed. In fact we could collectively sink it.

To give an indication of how this problem directly influences business. I am sitting here basically treading water and am at an utter loss as to what way to jump. I should be heading out East and try see what opportunities there are but am stuck waiting to see how the cards fall. Again there are many many in the same boat. This is recessionary.

Auditor #9 wrote:

Do we definitely know that a bank bailout hasn't already been passed under our noses here? I can't believe one of them hasn't gone the way of all slush - perhaps you're very right Squire and their assets are sound.

That sudden jack-in-the-box spectre popup of an 8 billion+ deficit here is troubling though ...

I said that some of them may become insolvent but may have sound assets. Unfortunately we just don't know and in any case if you invest you may have Cactus Flower nationalise it from under your nose.

I think 8 billion is an under statement.

Squire wrote:

I said that some of them may become insolvent but may have sound assets. Unfortunately we just don't know and in any case if you invest you may have Cactus Flower nationalise it from under your nose.

I think 8 billion is an under statement.

I suspect the markets are pricing in the fact that their shareholdings are about to be seriously diluted by governments in a wave of nationalisations....

I would also seriously doubt the ECB can maintain a non-interventionist policy.... they were apparently involved in the Fortis rescue meetings

I wonder does the 8bn deficit projection price in a bank rescue??

expat girl wrote:

I wonder does the 8bn deficit projection price in a bank rescue??

EEEK! Just one?

I heard figures closer to 12bn doing the rounds.


EDIT
Financial 3,487.18 down 890.31 points !!!!!!!!!!!

That is slaughter.
Perhaps we are about to get our very own Bank failure.

Overall 3414.