- On 6 Mar 2009
in
And I thought "affordability" meant lower prices! Silly me.,
Ed S. said:
Peter P,
Let me explain the reason why I first brought up cancelling naked CDS contracts: because the counterparties are unable to meet their obligations and threaten to destroy the international financial system unless the taxpayer steps in to honor the contract. As far as destroying the international financial system (which in actuality means destroying the “too big to fail” banks), well, then: Bring it on! Because I really don’t see how the “financial system” has really benefitted anyone except the uber-wealthy.
With some recent revelations, I’m beginning to think that all CDS should be made illegal. See the latest below from Bloomberg:
http://bloomberg.com/apps/news?pid=20601109&sid=aZjMcuIoat7U&refer=exclusive
By employing a so-called negative-basis trade, investors could buy Six Flags bonds at 20.5 cents on the dollar and credit- default swaps at 71 cents. If the New York-based chain defaults, the creditors would receive the face value of the debt, minus costs. In a Feb. 27 note, Citigroup Inc.’s high-yield strategists put that profit at 6 percentage points, or $600,000 on a $10 million purchase
So now we’re at a point where “investment banks” will profit from driving companies into bankruptcy. When does this end? Peter, I can already hear your answer – something like “Individually we need to align our interests with the negative basis traders. We cannot violate the sanctity of the contract”.
Here’s an idea: let’s allow credit card issuers to purchase life insurance on cardholders. If they look like they may not be able to pay off the balance, well, we’ll just kill them and collect the insurance.
- On 5 Mar 2009
in
And I thought "affordability" meant lower prices! Silly me.,
Ed S. said:
Peter P
I’m sure that you know all about these; but the NYT in Sept 2008 wrote specifically about AIG and GS:
http://www.nytimes.com/2008/09/28/business/28melt.html?_r=1&ref=business&oref=slogin
This is just one really small sliver of the derivatives mess. BTW, don't understand "cascading cross defaults"? Like everybody's bookie is broke?
justme,
I don't think Obama is there yet and I'm not sure if he will ever be -- but at this point I don't think anyone knows if he'll be Carter or Truman (another "machine" politician). And I don't know if the Supreme Court would go for the idea. But I'm much more concerned with using all of the weath of the country (and the world) to pay off naked CDS. I think that THAT would lead to a real revolution.
- On 5 Mar 2009
in
And I thought "affordability" meant lower prices! Silly me.,
Ed S. said:
The rationale for keeping people in houses (more importantly, paying something / anything on the notes – even at a lower interest rate) is that without the continued flow of payments the entire financial system will collapse. That’s why the Treasury has to “help arrest the damaging spiral in our housing markets”
The collapse will not come from the foreclosures but from the following (speculation only – but from reading between the lines):
1) Foreclosures (or walk-aways) resulting in a decline in the value of the securitized obligations (and collateral damage to car loans, cc debt, etc)
2) Decline in value of the securitized obligations result in impact to major fin ancial players
3)Insolvency of major financial players leads to bankrupty
4) Bankruptcy leads to payouts on the CDS’s (in the trillions) ultimately leading to the collapse of the entire world economy.
I suspect (again, don’t know but suspect) that the entire issue over trying to “save” homeowner and prevent foreclosures is REALLY to stop the triggering of the CDS’s. Also suspect that the reason for the unwillingness of saying how the money from the Fed/Treasury is being spent is that it will become apparent that the money is being used to pay off “side bets” – side bets being CDS written where the purchaser has no insurable interest and the writer has no ability to pay off the claims (which is what happened / is happening to AIG). There isn’t enough money available to pay off even a fraction of the CDS’s that have been written (estimated at, what, $60+ trillion?)
Really, the simple solution is for Obama to do a 21st century bank holiday: declare all CDS where there isn’t / wasn’t an insurable interest to be null and void (as illegal gambling, perhaps), and then determine what needs to be paid off.
