Subject: CDS's, "Financial Weapons of Mass Destruction"
Posted by: Baldwin
- [361056125] Wed, Nov 12, 2008, 16:59
Acording to Warren Buffet, these things, credit default swaps, are "financial weapons of mass destruction".
They figure deeply into AIG, Lehman Bros, Goldman Sach's problems and some of the bailout is actually to fix these things which only partially involve those institutions.
It's kinda mindmending stuff on first read but I think we gotta go there.
Check out this Nouriel Roubini video at 8:42 and onward. Poorly understood and unprecedented leverage involved. Hedges that are unlikely to be sound. It's like someone knocked out all the braces in the house of cards. There is even some deregulation of the CDS market mentioned for those looking to share the blame for this mess...maybe there's some Rep blame to be found finally in that.
This stuff is not transparent. Who made a killing as the props were kicked out? Send out a search party for Buzzy Krongard. Someone figure out how to trace who made what deals and who is responsible to police this stuff in the way the SEC watches the stock market for inside traders. Power elites made out like pirates in the S&L disaster [heck, their ancestors were pirates] and I am detecting a whiff of that here.
You guys more comfortable with this and better able to translate this stuff into something more accessable, please lend a hand.
Only the 50 most recent replies are currently shown. Click on this text to display hidden posts as well. [Lengthy or complex threads may require a slight delay before updating.]
147
Boxman
ID: 337352111 Mon, Jan 05, 2009, 09:41
Don't tell me the insiders didn't spend the last year [when it was clear how serious the subprime mess was] positioning themselves to profit, as they rode that turkey downhill.
All they really had to do was short the DOW or the S&P or an ETF that follows a barrel of oil down. What I'd like to see in a year or so from now is a list of who the big buyers in residential real estate are; specifically undeveloped subdivision type lots where condo buildings can be put up. Just a hunch but I think there's more profit there.
You've got real estate experience right Boldwin? Where are the margins at?
I was looking for a recent article to post here on the Alt-A loans and when they reset. 60 Minutes had a feature about a month back that talked about if you thought the ARMs were bad, just wait for the Alt-As and the teaser rate ones to go. It was quoted in the story that a conservative estimate for a default rate was 50% and that they are already seeing significant defaults even though the borrower is still paying at the teaser rate.
148
biliruben Leader
ID: 589301110 Mon, Jan 05, 2009, 09:53
The question I have is how many are furiously refiing out of their Alt-As, now that 4.5% money is letting them off the hook. Definitely some, but I don't know if the number is significant. Probably many are stuck due to tightening standards and loss of equity.
149
biliruben Leader
ID: 589301110 Mon, Jan 05, 2009, 09:55
If you think it will be clear a year from now who the winners and losers are on the residential side, you are far too optimistic. That tells me we have a ways to go yet.
As soon as it's pretty much a universal consensus that residential RE is a dog of an investment, we will be at bottom.
150
Boxman
ID: 337352111 Mon, Jan 05, 2009, 12:23
Probably many are stuck due to tightening standards and loss of equity.
You nailed an important point. I would hope the lower LIBOR rates, which in turn causes credit spreads to relax, would have assisted with this problem. Even though, numerically, those numbers have calmed down that doesn't mean the banks have to do anything. I think it may be due to the fact that the banks are reserving higher amounts of cash than before to deal with the current torrent of foreclosures and don't foresee existing and forward cash flows to rebuild those reserves in anticipation of the next wave of foreclosures. That could be what is causing the residential lending to be increasing difficult.
I can see the banks point in this too because they are dealing with a situation that has a lot of delinquents, but the gov't and the economy at large wants them to lend en masse again. They may have neither the will nor the ability to do so because of what they are facing currently.
151
Boxman
ID: 337352111 Mon, Jan 05, 2009, 12:25
Then an additional problem to this is, if the banks do not lend how do they create new cash flows to build up their reserves? Are they going to just have a competition with rival banks for deposits? I haven't been following this, but I would imagine CD rates have been climbing.
152
Perm Dude
ID: 10558 Mon, Jan 05, 2009, 12:33
...and the economy at large wants them to lend en masse again....
I think this is a slight mistatement. The economy wants this lending freeze to end. We don't want a free-for-all lending situation.
Article to which Boldwin references in #146, which I mistakenly put in the auto bailout thread. This article is a really good read on the situation.
154
Biliruben
ID: 101111315 Mon, Jan 05, 2009, 17:04
great article walk. I'd read liars poker years ago, and had forgotten what a good writer lewis is.
155
Building 7
ID: 3111252013 Mon, Jan 05, 2009, 18:40
good article walk. 900 links to NYT articles, finally a good one. lq
156
walk
ID: 181472714 Tue, Jan 06, 2009, 13:35
LOL, B7!
157
Biliruben via ifyone
ID: 101111315 Tue, Jan 06, 2009, 16:11
The risk article in the mag is also very good.
158
Boldwin
ID: 5704850 Wed, Jan 07, 2009, 13:18
Wait till the credit crunch hits farmers trying to borrow for this year's seed.
Local small town banks are actually a bit more ready to lend right now [compared to the large commercial banks] but I still have a bad feeling about this.
159
Biliruben via ifyone
ID: 101111315 Wed, Jan 07, 2009, 17:20
What is going to get the small regionals is commercial RE loans. They got shut out of residential, so they went whole-hog on CRE.
That is just starting to collapse, and defaults are going to wipe out dozens if not hundreds of smaller banks in 2009-10.
I want to say thousands, but I can't bring myself to be that pessimistic.
160
Boldwin
ID: 5704850 Wed, Jan 07, 2009, 21:02
How did they get shut out of residential?
161
biliruben Leader
ID: 589301110 Thu, Jan 08, 2009, 02:49
Those loans were securitized.
Competition from securities markets has also affected smaller banks significantly, though less dramatically than larger banks. For example, the portfolio share of commercial real estate loans, which are not amenable to standardization and therefore are difficult to securitize, has increased markedly. Setting aside the 100 largest banks, the share of commercial real estate loans in bank loan portfolios nearly doubled over the past 10 years and is approaching 50 percent. The portfolio share at these banks of residential mortgage and other consumer loans, which are more readily securitized, fell by 20 percentage points over the same period.
Sounds to me like they weren't shut out, rather that they were stuck with comercial when they were only able to shop out the residential they originated.
163
biliruben Leader
ID: 589301110 Thu, Jan 08, 2009, 07:31
Yeah - they no longer could use them as bread and butter for their own portfolios.
164
Boldwin
ID: 5704850 Thu, Jan 08, 2009, 08:29
Well look on the bright side. Now is their chance to add bargain basement residential to their portfolio.
165
biliruben Leader
ID: 589301110 Thu, Jan 08, 2009, 10:54
He couldn't be worse than Paulson. Millions of eligible candidates and they have to nominate a tax cheat to head the IRS. I'm sure that's going to do wonders for enforcement.
169
DWetzel at work
ID: 49962710 Wed, Jan 21, 2009, 15:38
It takes a thief to catch a thief?
170
biliruben Leader
ID: 589301110 Wed, Jan 21, 2009, 22:48
I'm having trouble getting behind Geithner.
I suppose we need someone with experience, but you gotta find someone with a strong sense of ethics, no?
171
jedman Dude
ID: 315192219 Wed, Jan 21, 2009, 23:03
I agree. I do not believe that he did not know he was supposed to pay those taxes. They gave him extra pay to cover the tax and I do not believe that he was not given all the information he needed to know what he was supposed to do. There is no way any of us get off as easy in the same situation. Does anybody know if he had to pay any interest and penalties? And he is going to lead the IRS?
172
Mith
ID: 2894309 Thu, Jan 22, 2009, 09:44
He paid interest but penalties were waived. No idea how often that happens with this particular issue. I noted that Neil Cavuto was interestingly very sympathetic while discussing this earlier in the week. He and his guest (Ben Stein I think?) agreed that this is a very common mistake and both suggested that it's preferable to have a Treasury Secretary who has had to deal with having the IRS on his case, giving him some familiarity with "how the rest of us feel when it happens to us."
That's certainly more generous than I'd have been but really I know very little about how common this particular offense is and how it is typically dealt with. I heard someplace that it was a good deal of time after the IRS contacted him before he finally paid up. If true, I have no idea whether there is a legitimate reason for such a delay, whether his accountants/attorneys could have been negotiating with auditors during that time or what have you.
173
Perm Dude
ID: 410112116 Thu, Jan 22, 2009, 10:12
I agree with Cavuto on this. The IRS agent typically would have wide latitude to waive or reduce penalties and/or interest. Penalties are typically waived in the case of an honest mistake (in the judgement of the Agent).
174
biliruben Leader
ID: 589301110 Thu, Jan 22, 2009, 10:14
My old boss's husband made this in error, completely innocently.
But this is either an ethical lapse or an intellectual one; something that should be in his wheel-house.
Either way, it makes him less qualified in my mind.
175
Building 7
ID: 471052128 Thu, Jan 22, 2009, 11:01
and both suggested that it's preferable to have a Treasury Secretary who has had to deal with having the IRS on his case, giving him some familiarity with "how the rest of us feel when it happens to us."
They must also think that it's preferable to have a District Attorney who has committed murder so he can have some familiarity with "how a murderer feels when it happens to them.
I could see maybe the Secretary of Transportation or something sliding on cheating on their taxes. But the Secretary of Treasury....Head of the IRS. Come on....we can do better.
He either knowingly cheated or he really didn't know the law. It doesen't matter. Either way, he has no business being the head of the IRS.
176
Perm Dude
ID: 410112116 Thu, Jan 22, 2009, 11:26
Actually, this is comparable to someone with a speeding ticket getting tapped to be Police Chief.
We need to stop looking for perfect people to run our government.
177
Mith
ID: 2894309 Thu, Jan 22, 2009, 11:30
He either knowingly cheated or he really didn't know the law. It doesen't matter. Either way, he has no business being the head of the IRS.
I tend to think that demanding the Treasury Secretary be a qualified expert on the entire tax code is a rather misplaced prerequisite.
I also think he likely had one or more accountants handling his taxes for him and that when tax issues come up with politicians it's never easy to know to what extent they were involved with the process. I'm pretty sure Geithner doesn't sit at his kitchen table every year with a calculator and the 1040 instruction manual.
178
jedman on iPhone
ID: 320442118 Thu, Jan 22, 2009, 12:35
PD made a point that I am coming to accept grudgingly. Everybody in politics seems to have something shady in their past. We seem to be left to choose the least offensive. A sad commentary on our politicians. I really don't think he gets through if he was a Bush appointee.
179
Boldwin
ID: 17042224 Thu, Jan 22, 2009, 16:45
Does this mean we all get the 'turbo tax screwed up' defense at least once?
I agree on the one hand that he is not lily white in this. On the other, I think these are very different in that Geithner, at least from what I have read, prepared his own taxes using Turbo Tax, was given a letter from the IMF clearly stating that he was liable for the taxes, and still did not pay and did not pay the two unaudited years until he was being put up for the nomination.
Is it just impossible to find somebody that can be totally clean in the vetting process? This is what disillusions me so much with politics. It seems it is becoming a choice between the lesser of two evils, pick the least shady character. I know that is a generalization, but it sure seems to be the case most of the time. Maybe in this day and age it is impossible to rise in the political ranks and be completely above board.
182
Building 7
ID: 3111252013 Thu, Jan 22, 2009, 19:02
There are plenty of candidates that have not cheated on their taxes. Had Geithner not been nominated, the taxes would likely remain unpaid. This is the best we can come up with for Secretary of Treasury.
183
Boxman
ID: 571114225 Sat, Feb 21, 2009, 21:18
184
Boxman
ID: 571114225 Sat, Feb 21, 2009, 21:25
185
Perm Dude
ID: 231262119 Sat, Feb 21, 2009, 22:08
Heh. Yes, Bush & McCain tried so hard for years to keep from having their brains taken over by the minority party. Their selfless dedication wasn't enough, however, and the godless ones went and did everything you see wrong today...
186
Baldwin
ID: 9123198 Sat, Feb 21, 2009, 23:10
You just can't process that video, can you PD?
The truth staring you in the face and it makes no impression.
What you couldn't socialize by getting it shoehorned into social security coverage, or imposed as unfunded mandates, you tried to do by blackmailing the mortgage industry into socialized housing only to crash the world's economy and you think you deserve a medal for it.
187
Perm Dude
ID: 231262119 Sat, Feb 21, 2009, 23:45
Wow, you really believe that, don't you? Honestly and truly believe that cherry-picked snippets taken out of context (read with squinty eyes) can get the GOP off the hook despite their gleeful chokehold on power for 8 years?
You don't deserve the reality-free bubble you've made for yourself.
188
jedman Dude
ID: 315192219 Sun, Feb 22, 2009, 00:23
Did I hear Barney Frank say "And even if there was a problem, the federal government wouldn't bail them out."?
PD, what exactly is taken out of context? It seems clear to me that Freddie and Fannie were being staunchly held up as wonderful companies that were strong and not in any kind of financial problems. It seems clear to me that more regulation of them was being asked for and it was being said they didn't need it.
I don't agree that they were the only problem out there, but how can it be defended that they were not in the wrong and were mismanaged?
189
Perm Dude
ID: 231262119 Sun, Feb 22, 2009, 09:10
I don't agree that they were the only problem out there, but how can it be defended that they were not in the wrong and were mismanaged?
That is the difference between you and much of the Right nowadays, who, in their attempts to blame everything on Democrats, refuse to believe that anything else was going on by those who were actually in charge at the time.
The problems at Fannie Mae and Freddie Mac have been wildly overblown by the Right in this regard. as well
190
Mith Dude
ID: 01629107 Sun, Feb 22, 2009, 09:28
It never ceases to amaze me how 8 chopped up minutes of video featuring 6 people from a 6 hour meeting that included 70 or 80 members of congress can make such gullible fools of the reactionary right.
jedman Dude
ID: 315192219 Sun, Feb 22, 2009, 10:25
Good link MITH. I totally agree that sub-primes were not the only problem that led to the housing and financial collapse, they were a part of it. Blame is on all sides.
Despite that, to me the point of the video is that so many Congressmen, and I won't just say Democrats, had their head in the sand with regards to Fannie Mae and Freddie Mac. Whether it was because they received large donations, or they were just stupid, I don't know. It was all just common sense to me, people making less than $50,000 could not afford a $400,000 house in a real world. People with $200,000 of inflated equity in their homes could not afford to use that equity to purchase multiple investment properties with artificially low payments and negative cash flows when the real mortgage payment kicked in.
The sad thing is that many of the real perpetrators of this mess, the predatory lenders and brokers have pocketed their money and are gone. I wish there was a way to make some of them pay for their unscrupulous practices. I have no sympathy for those who were greedy and leveraged themselves to the max trying to make a quick buck flipping houses. Unfortunately, many who have just lost their jobs and can't afford their houses are caught up in this and paying a steep price. But I'm not certain it is the government's role to bail them out. There is a certain amount of risk that goes with investing in anything, but if there is going to be a bailout, I sure want it to be for people who put down a reasonable amount of money and weren't way overextended in the first place.
192
jedman Dude
ID: 315192219 Sun, Feb 22, 2009, 10:28
I am going to refer to my question above, in the first video did Barney Frank say that we would not bail them out if there was a problem? He is so hard to understand, I'm not sure if I heard it correctly. I'd rather not plow through the transcript that MITH linked to above.
193
Mith Dude
ID: 01629107 Sun, Feb 22, 2009, 10:54
Jedman
the point of the video is that so many Congressmen, and I won't just say Democrats, had their head in the sand with regards to Fannie Mae and Freddie Mac.
Well, the point of the video is to serve as propaganda designed to demonize Congressional Democrats. The video is titled, "Shocking Video Unearthed Democrats in their own words Covering up the Fannie Mae, Freddie Mac Scam that caused our Economic Crisis". Here's the video info provided by the Youtube subscriber, "NakedEmporerNews":
Democrats in their own words Covering up the Fannie Mae, Freddie Mac Scam that caused our Economic Crisis.
At a 2004 hearing see Democrat after Democrat covering up and attacking the regulations to protect Fannie Mae and Freddie Mac (their Cash Cows) that are now destroying our economy because the Democrats let them cheat.
I have no interest in defending what happened at FM/FM, or the fact that congress - including the majority party - was clearly not interested in addressing any issues there.
The only point in my response is that the Youtube subscriber who provided that video and those who propagate it aren't interested in what really happened. They just want a convenient tool to attatch blame for the calamity on their political opponents.
194
jedman Dude
ID: 315192219 Sun, Feb 22, 2009, 11:13
Agreed, I should have said the point I am getting from the video.
Since frequenting this forum, I have put up a lot more filters when listening to talk radio. I have yelled at Hannity and Rush as much as Ed Schultz and Mike Malloy. I only catch snippets of the shows when I am in my car. They are entertainers, they don't let opposing views get in a word without interruption and I hate the name- calling. Let me throw Wilkow in there as well. They all bring up good points defending their political persuasion, but I agree that some points are taken out of context.
U.S. banks such as Morgan Stanley and Goldman Sachs have been explaining to their foreign customers that they can for now avoid the new rules, due to take effect next month, by routing trades via the banks' overseas units, according to industry sources and presentation materials obtained by Reuters.
The rules, a result of Washington's Dodd-Frank reforms, aim to prevent financial catastrophes in the over-the-counter (OTC) market - a huge, opaque market which is partly blamed for felling Lehman Bros in 2008 and fuelling a global financial crisis.
They call for U.S. banks dealing in OTC instruments, such as interest-rate swaps and cross-currency options, to effectively set aside capital against the risk of trades turning sour, execute their trades on electronic platforms and report them to U.S. authorities - requirements that worry the banks' offshore clients and threaten to drive business away from Wall Street.