World Financial System......done

[footieman]

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3211647/Fears-of-Lehmans-CDS-derivatives-haunt-markets.html

 

This is the real reason the banks are hoarding the cash.

 

I struggle to get my head around the whole Derivatives/CDS market but as I understand it we basically have ?55 trillion worth of betting slips taken out by the banks basically betting against other banks going bust. Four of these bets have now came in so its now D Day, or it will be next Tuesday, as to whether the money is actually there to pay out the bets. If that wasn?t bad enough some of the banks have used these betting slips as collateral to take out further loans, which makes the option of the world governing bodies of voiding all these betting slips virtually impossible.

 

Does that sound about right, or am I way of track?

[Geoff Kilpatrick]

I struggle to get my head around the whole Derivatives/CDS market but as I understand it we basically have ?55 trillion worth of betting slips taken out by the banks basically betting against other banks going bust. Four of these bets have now came in so its now D Day, or it will be next Tuesday, as to whether the money is actually there to pay out the bets. If that wasn?t bad enough some of the banks have used these betting slips as collateral to take out further loans, which makes the option of the world governing bodies of voiding all these betting slips virtually impossible.

 

Does that sound about right, or am I way of track?

 

Not bad - here's a good description: -

 

You loan Company A 1 million pounds, but you are worried that it may not be able to pay you back. You therefore contract with company C for a CDS. In return for a payment to them by Company B, they will pay out if Company A goes bust and cannot pay back the loan.

 

However, that is only the simple version. In reality what happens is that company D and E and F and so on, also bet that company A will go bust, and so take out a CDS and pay company C or any other company that is willing to take the risk on for a payment now. Remember, the other companies are not party to the original loan. Its would be like me taking out an insurance policy against your house catching fire. I might be the slightest bit tempted to saunter over and drop a match through your letterbox when you are away.

 

Anyway, back to CDS. It gets even sillier if you imagine company C that has sold the original CDS to you, then bets on the company going bust with company F or G, which in turn hedge their losses by doing the same. You can see that after awhile it gets so convoluted and messy that to pick the whole mess apart if night on impossible, with the risks and losses not at all clear. It also means that if a link in the chain goes down, like for example Lehmans, then you have companies who have to honour the bet they made, in the case of Lehman, I think it amounts to somewhere in the region of $500 billion. If any of the players cannot settle the amounts due, and as I understand it, they must be done within 14 days of the auction date, so the 24th of August is when all outstanding monies are due for the Lehmans defaults. Strangely enough, the auction for the Washington Mutual defaults is due on the 23rd....

[jambos are go!]

Why would you compare the Prime Minister to two financial journalists?

 

Because they were influencing public opinion in the dark whilst the PM was getting on with it.

[coppercrutch]

Because they were influencing public opinion in the dark whilst the PM was getting on with it.

 

 

Jambos are Go is actually Gordon Brown and I claim my ?10.

 

[Geoff Kilpatrick]

Because they were influencing public opinion in the dark whilst the PM was getting on with it.

 

So they were doing their jobs! Brilliant!

[Jammy T]

It also means that if a link in the chain goes down, like for example Lehmans, then you have companies who have to honour the bet they made, in the case of Lehman, I think it amounts to somewhere in the region of $500 billion. If any of the players cannot settle the amounts due, and as I understand it, they must be done within 14 days of the auction date, so the 24th of August is when all outstanding monies are due for the Lehmans defaults. Strangely enough, the auction for the Washington Mutual defaults is due on the 23rd....

 

I think "pay up day" for Lehmans is 21 or 22 October.

 

$500bn needing found

 

Ding ding, seconds away, round 2 of the crisis....

 

As an aside countries are now getting/needing bailed out, not just banks

 

Hungary is first in the queue to get a few billion from the IMF

 

Worryingly the whole of eastern europe INCLUDING the Baltics (yes, our very own Lithuania included) is at risk - from Business week

 

"Hungary however is just the tip of the iceberg, warn experts. UK economist Barry Gills of Newcastle University told the EUobserver that the crisis is set to hit much of Eastern Europe more profoundly than it has "Old Europe."

 

"There is a looming problem in the east?Ukraine and the Baltics in particular?where the IMF might have to be called in with very large support loans," he said.

 

"In Eastern Europe, growth is weakening and in some places going into reverse. They are experiencing some of the classic problems of developing countries in the past?structural imbalances such as insufficient reserves from exports to cover import bills; accruing debt to cover debts and balance of payments."

 

"This can lead to vulnerability of the currency, so they have to use reserves to protect the currency."

 

Mr Gills worried that the European Union may not have the funds at its disposal to come to the aid of its newest members.

 

"Does the EU have the financial reserves apart from the IMF to solve some of these regional solutions? I'm not so sure that's clear at the moment."

 

He also fretted about the significance of the IMF coming to the aid of member states. "Does the EU want countries under IMF tutelage within its borders?"

 

So, a few more countries at risk of "doing an Iceland"

[coppercrutch]

So, a few more countries at risk of "doing an Iceland"

 

Unfortunately I think we are within that grouping.

 

I truly think Gordon Brown will go down in history as the man who ruined this country.

 

I would be shocked if this is a nice place to live in 10 years. I hope I am wrong but I can just see us going down the swanny.

 

Just saw Cameron on the TV. Even though they are a bit late with their understanding of the mess - better late than never.

 

Root of the problem - too much debt, too high house prices, too much lending, too little financial regulation.

 

It really is that simple.

[Geoff Kilpatrick]

Unfortunately I think we are within that grouping.

 

I truly think Gordon Brown will go down in history as the man who ruined this country.

 

I would be shocked if this is a nice place to live in 10 years. I hope I am wrong but I can just see us going down the swanny.

 

Just saw Cameron on the TV. Even though they are a bit late with their understanding of the mess - better late than never.

 

Root of the problem - too much debt, too high house prices, too much lending, too little financial regulation.

 

It really is that simple.

 

Cameron doesn't seem to mention many solutions though. Perhaps it's because he accepts the UK needs a recession but can't say it as it's "politically incorrect".

 

Your point about Iceland is interesting. There is a great lie in the UK at the minute about public debt being 46% of GDP. However, if you count RBS that could shoot up to 160% of GDP and that's before PFI (which comes back on balance sheet next year due to regulation changes) and unfunded public sector pension liabilities are considered. Will Britain go bust? Don't think so, but there will have to be significant real cuts in public spending and hefty tax rises, despite Brown's bluster.

 

As for Eastern Europe, the Baltic states may find the EU coming to their aid if Russia starts to get aggressive again over energy. The last thing the EU needs is Russia throwing their weight around at this present time and instability in the Baltics and Eastern Europe would be to their political advantage.

[Boris]

Unfortunately I think we are within that grouping.

 

I truly think Gordon Brown will go down in history as the man who ruined this country.

 

I would be shocked if this is a nice place to live in 10 years. I hope I am wrong but I can just see us going down the swanny.

 

Just saw Cameron on the TV. Even though they are a bit late with their understanding of the mess - better late than never.

 

Root of the problem - too much debt, too high house prices, too much lending, too little financial regulation.

 

It really is that simple.

 

 

Thatcher surely beats Brown to that mantle, given what we are reaping at the moment is essentially the fruition of her economic policies that have been sustain by chancellor after chancellor after chancellor.

 

All Brown has done differently has been to throw in some social policies to help those in most need, but essentially has been running the economy in the same way as the Tories did.

[coppercrutch]

Cameron doesn't seem to mention many solutions though. Perhaps it's because he accepts the UK needs a recession but can't say it as it's "politically incorrect".

 

Your point about Iceland is interesting. There is a great lie in the UK at the minute about public debt being 46% of GDP. However, if you count RBS that could shoot up to 160% of GDP and that's before PFI (which comes back on balance sheet next year due to regulation changes) and unfunded public sector pension liabilities are considered. Will Britain go bust? Don't think so, but there will have to be significant real cuts in public spending and hefty tax rises, despite Brown's bluster.

 

As for Eastern Europe, the Baltic states may find the EU coming to their aid if Russia starts to get aggressive again over energy. The last thing the EU needs is Russia throwing their weight around at this present time and instability in the Baltics and Eastern Europe would be to their political advantage.

 

I think that is spot on.

 

As for the debt it is a joke. Read an article recently that put our debt about 120% of GDP I think. All Broon has done is sweep it under the carpet. Shocking.

 

 

Thatcher surely beats Brown to that mantle, given what we are reaping at the moment is essentially the fruition of her economic policies that have been sustain by chancellor after chancellor after chancellor.

 

All Brown has done differently has been to throw in some social policies to help those in most need, but essentially has been running the economy in the same way as the Tories did.

 

Yes they are all much of a muchness. However you cant argue that Labour tend to leave the country in an economic mess.

 

Brown has been good for the very rich and the very poor who are lazy.

 

Everyone in between is getting shafted.

[Boris]

Yes they are all much of a muchness. However you cant argue that Labour tend to leave the country in an economic mess.

 

Brown has been good for the very rich and the very poor who are lazy.

 

Everyone in between is getting shafted.

 

Do Labour tend to leave the countryin an economic mess? Perhaps, but then I've not really know a Government that is running the economy well to lose a General Election. Labour get in when the Tories screw up and vice versa. If anything it proves the futility of the whole system.

 

Brown good for the very poor who are lazy? I assume you are referring to some sort of Daily Mail-esque critique of the Social Welfare system in this country?

 

You come out with some really salient points at time CC, but then you go and post stuff like that. Perhaps you are having a break and one of your mates is posting on your behalf?

[Charlie-Brown]

Does anybody know how the Germans reconstructed their currency in the 1920's when the previous version of the deutsch-mark was rendered value-less? ie How did they re-float the currency and allocate it to people when their previous money was worth virtually nothing?

 

As I see it the potential losses or worthless assets in the derivatives market has the potential to sink all existing banks, currencies, & nation-states (except of course if they create new money/loans and put their tax-payers in debt for decades/centuries to come)...I don't think people realise the magintude of the problem yet....there are hundreds of billions/trillions of worthless assets ie uncollectable & unpayable debts without sinking huge parts of the existing financial & monetary system taking down nations as well as their banking systems.

[Boris]

Does anybody know how the Germans reconstructed their currency in the 1920's when the previous version of the deutsch-mark was rendered value-less? ie How did they re-float the currency and allocate it to people when their previous money was worth virtually nothing?

 

As I see it the potential losses or worthless assets in the derivatives market has the potential to sink all existing banks, currencies, & nation-states (except of course if they create new money/loans and put their tax-payers in debt for decades/centuries to come)...I don't think people realise the magintude of the problem yet....there are hundreds of billions/trillions of worthless assets ie uncollectable & unpayable debts without sinking huge parts of the existing financial & monetary system taking down nations as well as their banking systems.

 

 

Basically the Weimar economy was refloated by American money (The Dawes Plan? http://en.wikipedia.org/wiki/Dawes_plan#Main_points_of_the_Dawes_Plan) via loans.

 

Of course when Wall Street Crashed in 1929 all the loans were called in and the Weimar economy had the rug pulled our from under it.

[coppercrutch]

Do Labour tend to leave the countryin an economic mess? Perhaps, but then I've not really know a Government that is running the economy well to lose a General Election. Labour get in when the Tories screw up and vice versa. If anything it proves the futility of the whole system.

 

Brown good for the very poor who are lazy? I assume you are referring to some sort of Daily Mail-esque critique of the Social Welfare system in this country?

 

You come out with some really salient points at time CC, but then you go and post stuff like that. Perhaps you are having a break and one of your mates is posting on your behalf?

 

There are literally millions of people in this country who fall into this category. They could work. They choose not to. Housing - paid for. Benefits. They manage to afford bevvy, fags, new caps and even a nice flat screen TV.

 

This is not a daily mail esque view of the World. This is reality. Just head to numerous areas of this City and you will see this.

 

IMO these people should be left with nothing. Why should the rest of us pay for some lazy dole bludger who would rather drink themselves into a stupor every day?

 

**** them.

[Boris]

There are literally millions of people in this country who fall into this category. They could work. They choose not to. Housing - paid for. Benefits. They manage to afford bevvy, fags, new caps and even a nice flat screen TV.

 

This is not a daily mail esque view of the World. This is reality. Just head to numerous areas of this City and you will see this.

 

IMO these people should be left with nothing. Why should the rest of us pay for some lazy dole bludger who would rather drink themselves into a stupor every day?

 

**** them.

 

I don't disagree with the sentiment at all CC. Remember the Marxist adage of equal liability to work of all.

 

You make it sound as if the Govt deliberately goes out of its way to encourage this though, and it doesn't. These sort of Lumpen Proles have always existed, regardless of the party in charge.

[coppercrutch]

I don't disagree with the sentiment at all CC. Remember the Marxist adage of equal liability to work of all.

 

You make it sound as if the Govt deliberately goes out of its way to encourage this though, and it doesn't. These sort of Lumpen Proles have always existed, regardless of the party in charge.

 

I do agree they don't encourage it intentionally.

 

I have seen far too many programmes on TV with these people ****ing all over the system. They just make it too easy.

 

I would not discount accepting benefits myself. However it would have to be the very last resort in extreme circumstances. I just don't understand why it is the first option for so many ?

 

You are not turning me into a Commie though !!

[Martin_T]

That is exactly what Peston is saying. LIBOR is around 200 basis points above base rate. It's down from what it was but is still well above normal (about 9 basis points).

 

http://www.thedailymash.co.uk/news/celebrity/robert-peston-transformed-into-pure-energy-200810081310/

 

....on the subject of Peston....

[Boris]

I do agree they don't encourage it intentionally.

 

I have seen far too many programmes on TV with these people ****ing all over the system. They just make it too easy.

 

I would not discount accepting benefits myself. However it would have to be the very last resort in extreme circumstances. I just don't understand why it is the first option for so many ?

 

You are not turning me into a Commie though !!

 

Well I don't know why it is the first resort for many, but the reason they are here is because they are Lumpen Proles, a natural by product of capitalist society.

 

Hide behind your conspiracy theories or critiques of the current global financial system if you wish CC, but deep down you know Karl & Friedrich were right - 160 years before you!

 

Keep the Faith Tovarich.

 

Boris

[footieman]

Not bad - here's a good description: -

 

You loan Company A 1 million pounds, but you are worried that it may not be able to pay you back. You therefore contract with company C for a CDS. In return for a payment to them by Company B, they will pay out if Company A goes bust and cannot pay back the loan.

 

However, that is only the simple version. In reality what happens is that company D and E and F and so on, also bet that company A will go bust, and so take out a CDS and pay company C or any other company that is willing to take the risk on for a payment now. Remember, the other companies are not party to the original loan. Its would be like me taking out an insurance policy against your house catching fire. I might be the slightest bit tempted to saunter over and drop a match through your letterbox when you are away.

 

Anyway, back to CDS. It gets even sillier if you imagine company C that has sold the original CDS to you, then bets on the company going bust with company F or G, which in turn hedge their losses by doing the same. You can see that after awhile it gets so convoluted and messy that to pick the whole mess apart if night on impossible, with the risks and losses not at all clear. It also means that if a link in the chain goes down, like for example Lehmans, then you have companies who have to honour the bet they made, in the case of Lehman, I think it amounts to somewhere in the region of $500 billion. If any of the players cannot settle the amounts due, and as I understand it, they must be done within 14 days of the auction date, so the 24th of August is when all outstanding monies are due for the Lehmans defaults. Strangely enough, the auction for the Washington Mutual defaults is due on the 23rd....

 

Cheers Geoff, it sounds like next week could be a biggie.

[Charlie-Brown]

OMG: The derivatives bubble = $190K per person on planet

 

http://blogs.zdnet.com/Foremski/?p=318

 

further details....

http://www.siliconvalleywatcher.com/mt/archives/2008/10/the_size_of_der.php

http://www.siliconvalleywatcher.com/mt/archives/2008/10/analysis_why_ma.php

[Coco]

OMG: The derivatives bubble = $190K per person on planet

 

http://blogs.zdnet.com/Foremski/?p=318

 

further details....

http://www.siliconvalleywatcher.com/mt/archives/2008/10/the_size_of_der.php

http://www.siliconvalleywatcher.com/mt/archives/2008/10/analysis_why_ma.php

 

These sorts of points are nice for headlines but are ludicrously overdone.

 

Where did derivatives start? Futures and forwards for agricultural commodities. These are risk reducing devices which have been around for a very long time.

 

Clearly today's derivative market is very deep and wide and complex. But quoting gross market sizes distorts the impact of derivatives on everyday life.

[Charlie-Brown]

These sorts of points are nice for headlines but are ludicrously overdone.

 

Where did derivatives start? Futures and forwards for agricultural commodities. These are risk reducing devices which have been around for a very long time.

 

Clearly today's derivative market is very deep and wide and complex. But quoting gross market sizes distorts the impact of derivatives on everyday life.

 

This article is a good counter-balance and makes some of the points you allude to Coco however the derivatives markets have gone beyond risk reducing instruments and have created a 'market' that is now unstable & over-valued and as it 'corrects' itself you have billions/trillions worth of debts or assets that in reality cannot ever be paid back - cannot be collected without sinking huge swathes of the real economy and possibly even some nations.

 

http://www.forbes.com/opinions/2008/10/16/derivatives-greenspan-destruction-oped-cx_sl_1017lee.html