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News & ArtsSaturday, March 14, 2009
Economy To Golob
Posted by Charles Mudede on Sat, Mar 14, 2009 at 7:29 PM
The market for the credit default swaps has been enormous. Since 2000, it has ballooned from $900 billion to more than $45.5 trillion — roughly twice the size of the entire United States stock market. Also in sharp contrast to traditional insurance, the swaps are totally unregulated.When the mortgage-backed securities that many swaps were supporting began to lose value in 2007, investors began to fear that the swaps, originally meant as a hedge against risk, could suddenly become huge liabilities.
2
It's beyond GWB, this is going to destroy the markets destroying whatever wealth we think we had. Entire companies will be bought for pennies. This is the end of 'free market' capitalism.
3
Not a lot different than a Ponzi scheme, really. Except in a pyramid, you just loose your investment. What's really evil is when this pyramid collapses, you are geometrically on the hook for everyone you backed, and you bring down all the other nodes in the scheme with you. Pretty spectacular implosion, and was probably responsible for the majority of the banking collapses that followed the initial trouble from the mortgage problems.
> The Federal Reserve concluded that if A.I.G. failed and defaulted on its swaps, throwing the liability for the insured securities onto the swaps' counterparties, the result could be a daisy chain of failures across the international financial system.
And they were probably right. Imagine allowing such a complex, unregulated and _opaque_ system to allow _ONE_ individual bank failure to take down the entire fucking world.
@1: The CDS market predates W, and I would be highly surprised if he even understood WTF it was. His advisors, however, did, and believed allowing them to do whatever they wanted unregulated was the best course of action.
> The Federal Reserve concluded that if A.I.G. failed and defaulted on its swaps, throwing the liability for the insured securities onto the swaps' counterparties, the result could be a daisy chain of failures across the international financial system.
And they were probably right. Imagine allowing such a complex, unregulated and _opaque_ system to allow _ONE_ individual bank failure to take down the entire fucking world.
@1: The CDS market predates W, and I would be highly surprised if he even understood WTF it was. His advisors, however, did, and believed allowing them to do whatever they wanted unregulated was the best course of action.
4
You know, I have no doubt that that number is bad, but I don't know how bad. The part that worries me is that I no longer have any confidence that the financial experts know how bad it is, either. I think they're all in over their heads.
It's going to be interesting times.
It's going to be interesting times.
5
they know exactly what they're doing... this is disaster capitalism 101 (read naomi klein). they bailed out aig and co so the banks that issued mortgages can still recover the inflated value of those loans they issued rather than the real value of the homes they were for when the cards came down - at taxpayer expense.
6
Here's the thing, if you keep the secured pro pert from defaulting the swap is worthless. All these bailouts and talk of counterparty systemic risk, this is whats at the heart of it. If we keep things propped up for long enough the swaps will expire.
Thats the end game. Let them expire, regulate away new ones, and then we can avoid the systemic risk that brings up talk of total collapse.
Thats the end game. Let them expire, regulate away new ones, and then we can avoid the systemic risk that brings up talk of total collapse.
9
CDSs need to be disclosable; they are not, currently, so you can't tell who is leveraged to whom and by how much->hence the collapse of Lehman Brothers. Short of that, they should be banned in their current form entirely.
11
Sgiffy got something right! Yay, sgiffy!
China is gluing the walls, Europe is boarding up our windows and Canada is collapsing so it's leaving our house once and for all.
On the upside, the amount of actual money that is in limbo out there is staggering and could easily catch our freefall. Unfortunately, it's nearly impossible to convince Americans they are the ones that will have to recapitalize the market, unless Suze Orman comes out and says "penny stocks, everyone" with her creepy hypnosmile.
China is gluing the walls, Europe is boarding up our windows and Canada is collapsing so it's leaving our house once and for all.
On the upside, the amount of actual money that is in limbo out there is staggering and could easily catch our freefall. Unfortunately, it's nearly impossible to convince Americans they are the ones that will have to recapitalize the market, unless Suze Orman comes out and says "penny stocks, everyone" with her creepy hypnosmile.
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