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jesus christ, is it possible to actually let an institution fail in this country??? (pg. 4)
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| LazFX |
| quote: | Originally posted by MisterOpus1
Boy, gotta love all that deregulation, eh free marketers? Of course you don't mind that darn socialist bailout when you swim in the dung you created.
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| Krypton |
| quote: | Originally posted by MisterOpus1
We're ed.
And the future generations that have to foot this bill are ed.
Boy, gotta love all that deregulation, eh free marketers? Of course you don't mind that darn socialist bailout when you swim in the dung you created.
Gee, I wonder what Palin thinks about this? |
I liken it to a democracy which considers itself free...to a certain extent. Even "free" societies have rules for the purpose of protecting society...which is essentially socialism...so everytime I hear some Republican nutjob say "socialist" this, or "marxist" that, I chuckle a bit inside, because no society, no matter how "free" needs a certain degree of "socialism" to keep things running as smoothly as possible. But to Republicans, its never socialism when its their lobbyist buddies who need a bail out...
A market without rules is like traffic without speeding limits and traffic lights. All hell eventually breaks lose, and that's exactly whats happened as a result of deruglation by the likes of Phil Gramm. |
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| jerZ07002 |
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Sept. 15 (Bloomberg) -- Bond-default risk soared worldwide as the collapse of Lehman Brothers Holdings Inc. sparked concern than the $62 trillion credit-derivatives market will unravel.
Benchmark gauges of corporate credit risk rose by a record in Europe, and traded near an all-time high in North America, driven by a rise in Goldman Sachs Group Inc., Morgan Stanley and American International Group. U.S. two-year Treasuries climbed, pushing yields below 2 percent for the first time since April, as investors sought the relative safety of government debt.
Lehman, the fourth-largest securities firm until last week, has been one of the 10 largest counterparties in the market for credit-default swaps, according to a 2007 report by Fitch Ratings. The market, which is unregulated and has no central exchange where prices are disclosed, has been the fastest- growing type of so-called over-the-counter derivative, according to the Bank for International Settlements.
``The immediate problem is the derivative default swaps market, in which a plethora of institutional accounts and dealer accounts are at risk,'' Bill Gross, manager of the world's largest bond fund at Pacific Investment Management Co. in Newport Beach, California, said in an interview with Bloomberg Radio yesterday. ``It induces a tremendous amount of volatility and uncertainty.''
The Markit CDX North America Investment Grade Index, linked to the bonds of 125 companies in the U.S. and Canada, rose 37.5 basis points to 189.5 as of 9:45 a.m., according to broker Phoenix Partners Group. The Markit iTraxx Crossover Index of 50 European companies with mostly high-risk, high-yield credit ratings jumped 68 basis points to 614, according to JPMorgan Chase & Co. prices.
Bank Risk
Morgan Stanley and Goldman Sachs led an increase in the cost of default protection on U.S. banks after U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke ruled out government help for Lehman, triggering concern the government will no longer bail out troubled financial firms.
Credit-default swaps on Morgan Stanley soared 194 basis points to 458 and Goldman Sachs jumped 122 basis points to 321, according to CMA Datavision prices.
Sellers demanded 50 percentage points upfront and 5 percentage points a year to protect the bonds of Washington Mutual Inc. from default on concern that the biggest U.S. savings and loan won't survive the credit crisis, CMA data show.
That compares with an upfront cost of 40 percentage points on Sept. 12 and means it would cost $5 million initially and $500,000 a year to protect $10 million in bonds for five years.
AIG, HSBC
The upfront cost to protect AIG bonds from default soared 21.5 percentage points to 34 percentage points, CMA data show.
HSBC Holdings Plc, Europe's biggest bank, rose 29 basis points to 100, the most ever, according to CMA. Barclays, the U.K.'s third-biggest bank, climbed 38 to 170, Zurich-based UBS AG jumped 39 to 175 and Spain's Banco Santander surged 22 to 122.
Losses may reach several hundred million dollars should a major dealer default, Moody's Investors Service said in May. Lehman filed for bankruptcy today after Barclays Plc and Bank of America Corp. abandoned talks to buy the company.
Lehman bondholders may get about 60 cents on the dollar if the U.S. securities firm is forced into liquidation, analysts at CreditSights Inc. said.
Investors in the New York-based company's senior unsecured bonds are likely to get between 60 cents and 80 cents on the dollar, analysts led by David Hendler and Baylor Lancaster wrote in a research note. The notes traded at about 35 cents today. Holders of lower-ranked debt should expect less.
`Maximum Negative Day'
Contracts on the finance arm of General Electric Co., GE Capital, soared 100 basis points to 318 basis points, CMA data show. GE yesterday repeated in a memo to investors that GE Capital doesn't need to raise external capital, affirmed its profit forecast for the commercial real-estate unit and said its consumer-finance division, GE Money, has ``adequate reserves.''
Merrill Lynch & Co. dropped 135 basis points to 323 after Bank of America, agreed to buy the world's biggest brokerage firm for about $50 billion. Bank of America climbed 52 basis points to a record 211 basis points.
Contracts on Wachovia Corp., the fourth-biggest U.S. bank, rose 110 basis points to 563 and JPMorgan surged 47 to 190.
``Without Merrill, it would have been a maximum negative day for the market,'' said Jim Reid, head of fundamental credit strategy at Deutsche Bank AG in London. ``Merrill pulls us back. Its impact is not to be underestimated.''
`So Far Off the Edge'
Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.
A gauge of risk in the U.S. leveraged-loan market that falls as credit risk increases dropped 1.9 percentage points to a mid price of 95.1, according to Goldman Sachs. The index is tied to high-yield, high-risk loans.
``We've fallen so far off the edge of the earth right now that we can't even begin to describe what we are seeing,'' said Jim Bianco, president of Bianco Research LLC in Chicago. ``Nobody begins to know what will happen because we've never come to anything remotely close to this before.''
Derivatives such as credit-default swaps are traded between banks, hedge funds, insurance companies and other institutional investors, so the collapse of a market-maker has the potential to wipe out profits made on those contracts that aren't backed by collateral.
`Potentially Concentrated'
Barclays Capital analysts in February estimated that if a financial institution that had $2 trillion in credit-default swap trades outstanding were to fail, it might trigger between $36 billion and $47 billion in losses for those that traded with the firm. That doesn't include ``large, potentially concentrated'' market value losses others would face, the analysts, led by Arup Ghosh in London, wrote on Feb. 20.
A Lehman bankruptcy ``obviously puts a lot more risk in the market, so it's definitely going to be wider,'' said Brian Yelvington, a strategist at CreditSights Inc. in New York.
The Fed widened the collateral it accepts for loans to Wall Street bond dealers yesterday in an effort to keep financial markets from seizing up. The central bank will accept equities in the Primary Dealer Credit Facility, its program for lending cash directly to securities firms, in addition to investment- grade debt.
Term Lending Facility
Collateral for the Term Securities Lending Facility, which auctions loans of Treasuries, will now include all investment- grade debt securities. The size of the TSLF will also increase to $200 billion from $175 billion, the Fed said.
In addition to the session for netting derivatives, or canceling trades that offset each other, Merrill Lynch, JPMorgan, Bank of America and seven other firms said in a joint statement yesterday that they will provide a total of $70 billion to a borrowing facility aimed at providing liquidity to financial institutions.
``Some people say that `yes, when you net up all the Lehman trades it will be less than the gross amount', but we have no idea because we've never attempted anything like this before,'' said Bianco. Dealers also face losses from the government takeover of Fannie Mae and Freddie Mac on Sept. 7, which caused a technical default on the contracts.
The cost of protecting European investment-grade corporate bonds from default jumped. The Markit iTraxx Europe index of 125 companies rose 26.5 basis points to 129, JPMorgan prices show.
A basis point on a credit-default swap contract protecting 10 million euros ($14.2 million) of debt from default for five years is equivalent to 1,000 euros a year.
U.S. Treasuries
Treasuries rose as investors sought the relative safety of government debt. The yield on two-year Treasury notes dropped 37 basis points, or 0.37 percentage point, to a five-month low of 1.84 percent, according to bond broker BGCantor Market Data. The yield is below the Fed's target interest rate for overnight loans between banks, a sign investors are speculating the central bank will lower borrowing costs.
The dollar fell 2.2 percent to 1.056 yen, a two-month low. It rose 0.6 percent to $1.4141 against the euro, after earlier dropping to the weakest in 11 days.
Investors may have had enough warning to limit losses, said Tony Crescenzi, chief bond strategist at Miller Tabak & Co. in New York.
``Market participants have had ample warning on Lehman and have likely already taken the precautions they felt were necessary to guard against risks Lehman's potential failure might pose,'' Crescenzi wrote in a note to clients yesterday.
Netting Trading Session
Derivatives are financial instruments linked to stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or weather.
Banks and brokers yesterday opened trading desks to enter into derivatives transactions that would offset trades with Lehman in case the firm filed for bankruptcy before midnight. The International Swaps and Derivatives Association said the ``netting trading session'' began at 2 p.m. and continued until at least 6 p.m. New York time. The trades would have been canceled had Lehman not filed for bankruptcy.
While credit-default swaps have grown 100-fold in the past seven years, there's no central clearinghouse designed to help absorb losses from a bank collapse.
The Clearing Corp., the Chicago clearinghouse, isn't set to be completed until at least the end of this year, or early 2009.
``What we've seen this year is regardless of the fundamentals, regardless of efforts made by the Fed and the Treasury to restore confidence, you can't order that up,'' said Martin Fridson, chief executive officer of Fridson Investment Advisors, said in New York.
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http://www.bloomberg.com/apps/news?...v2rU&refer=home |
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| Shakka |
| I guess the answer to my original question is yes! A line has been drawn today, albeit with pencil. The dominoes are tumbling. |
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| jerZ07002 |
| quote: | Originally posted by Shakka
I guess the answer to my original question is yes! A line has been drawn today, albeit with pencil. The dominoes are tumbling. |
the gov is pusing goldman and jp morgan to extend 80 billion in credit to AIG. I wonder what's really being said about that credit line. |
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| St_Andrew |
| quote: | Originally posted by Shakka
I guess the answer to my original question is yes! A line has been drawn today, albeit with pencil. The dominoes are tumbling. |
Well, it's the biggest bankruptcy in history. Pencil enough ;)
But yeah, I have been thinking the same thing, it's terrible how the US government/the fed has been refusing to let the market correct itself. And in the case of Fannie Mae/Freddie Mac, refusing to let the shareholders/management take responsibility until very late in the process.
It's really a shame, though reasonable (under the current tax-payer bail-out policies), that this is prompting a lot of new regulation from both the presidential candidates (and the president himself).
Good bye to free financial markets :( |
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| atbell |
| quote: | Originally posted by Shakka
Yeah, theoretically it would be very bad given all of the counter-party risk involved--that was rationale behind Bear Stearns, though I don't see it with GM and Ford. Keep an eye on AIG though--they have to have massive counterparty risk and that is a huge concern.
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I'm getting more and more certain that this is the early stages of a large scale debt default. The conditions are looking far to much like what happened in Argentena in 2001/02.
GM and Ford have been sneaking thier pleas for money out under the radar. |
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| atbell |
| quote: | Originally posted by mndeg
odd that just a week ago, seemed like their insolvency issues were ignored. |
That's because F&F have 5.1 Trillion worth of outsanding loans and the US government has now garunteed them. |
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| atbell |
| quote: | Originally posted by DJ Shibby
My pondering is why.
Why why why?
I'm truly interested in more insight on the shiny thing phenomena! |
Keynes loves attacking the value of gold. He seems to be as confounded about it as you.
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"If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing."
"Thus gold-mines are of the greatest value and importance to civilisation. just as wars have been the only form of large-scale loan expenditure which statesmen have thought justifiable, so gold-mining is the only pretext for digging holes in the ground which has recommended itself to bankers as sound finance; and each of these activities has played its part in progress-failing something better."
-Keynes, The General Theory of Employment, Interest, and Money
http://www.marxists.org/reference/s...theory/ch10.htm
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I haven't thought enough about what he's saying to argue on either side of this point but I do find it interesting that he points out that gold mining is kind of an odd pursuit. |
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| atbell |
| quote: | Originally posted by MisterOpus1
We're ed.
And the future generations that have to foot this bill are ed.
Boy, gotta love all that deregulation, eh free marketers? Of course you don't mind that darn socialist bailout when you swim in the dung you created.
Gee, I wonder what Palin thinks about this? |
Future generations, nah, were taking this baby right in the balls.
I do find it funny that the 'capitalists' and bankers who scream for deregulation, privitization, and lower government involvement in Toronto are now at the top of the world because of it, literally! The Canadian banks have jumped to the ranks of DB, Barklays, RBS, HSBC and the rest while thier American counter parts have crashed.
As much as there may be tention between banks and the public sector in Canada they've both got to be happy to hold up so well considering. |
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| Sunsnail |
| I don't understand how the government chooses which companies to bail out or not. Is it really so arbitrary? |
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| The17sss |
| quote: | Originally posted by MisterOpus1
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Boy, gotta love all that deregulation, eh free marketers? Of course you don't mind that darn socialist bailout when you swim in the dung you created. |
First, I'm not a financial guru but from what I understand, I don't see how can you blame the free market for this. It's government regulated institutions and enterprises that are bringing down the economy in big chunks. The housing market was totally fine until Fannie and Freddie encouraged all kinds of mortgages that required little or nothing down, resulting in people buying the homes that they could never afford, driving home prices beyond what was realistic. What we have now here is not a crash in the home price business or home value business. We have a correction going on because the free market was tampered with here in an obvious way.
The president and the Congress, they both did this, insisted that more mortgages be made to poorer and poorer people which meant that people with few assets and an inability to pay should the economy begin to sour, get loans, and that's exactly what happened. They were trying to hand out the "American dream" a little too much. Wall Street firms are failing because they took on bad mortgages given to deadbeats who didn't deserve them, not because of Bush policies. And who made them do this? It was an act of Congress. Too many of these people in Washington want to pander, and that's exactly what's happening now. The thing that really distresses me is at the end of the day on all this, people are going to end up with a conclusion that capitalism doesn't work, that capitalism is what's flawed here and it's not. When they start talking about regulation like McCain did in Jacksonville, "We need more regulation." No we don't! We need accountability.
When you have the federal government involved in regulation and bailouts and so on it eliminates the whole notion of risk, and it is risk that causes responsibility. So there hasn't been any responsibility in any of this, because the risk in these people's minds hasn't really existed. Capitalism is full of risk. The government isn't. When does the government ever report a down business cycle? The government always grows, does it not? In fact, the government is not allowed to report a down business cycle.
Check out this article from the UK Independant... excellent take on the situation:
http://www.independent.org/blog/?p=186 |
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