600 Trillion Dollar Storm About to Hit (That They Didn't Want You To Hear About)

Quote from Landis82:

This kind of reminds me of how the media was throwing around a $75 TRILLION number for the CDS market . . . but what they didn't tell you was the fact that the number they were quoting included both "sides" of the trade . . . Thus, the REAL number is somewhere around half that . . . something like $34.8 trillion.

Once again, a veteran trader like Pabst is able to add valuable COMMON SENSE to what the mainstream financial media has very little knowledge about!
More...

Okay, let's assume 35 trillion.

Does anyone have a reasonable, or even remotely reasonable, method of calculating the prospective losses on that 35 trillion by the time all is said and done?

Also, does anyone have the faintest idea of how long the whole unwinding process will take? Months? Years?
 
Quote from ByLoSellHi:

Two thirds of contracts by volume or $393 TRILLION fell into the category of interest rate derivatives. Credit Default Swaps had a notional volume of $58 TRILLION, seeing the sharpest relative increase after a volume of $43 TRILLION a year earlier.

Currency derivatives reached a volume of $56 TRILLION.
More...

Volume. As in contracts traded. In what, a year? Boys and girls, we are traders. We know the difference between volume and float. Right?
 
Quote from ByLoSellHi:

These are unregulated and not traded on any exchange.

The problem, no - crisis - they they've created is that no one knows who is exposed to them, and by how much.

This is why banks and financial institutions won't lend money. They're afraid the recipient has exposure to CDS liabilities. Even if that borrower never pays, it will mean they didn't pay because they went Bankrupt, and it will mean they won't pay back the borrowed sums, either.

If you're going to go bankrupt, you go all the way.
More...

That's spot on. Look at WaMu (#@&% them feds, anyways). Did JPM buy the regulators strippers and booze? I think a lot of this could have been at least slightly averted had the feds attached at least some of the debt to the assets. . .
 
Quote from plugger:

Not quite. Let's say you are a bank holding bonds in Corporation A. To protect yourself, you purchased a credit default swap on the underlying face value. Corporation A starts to deteriorate and so do the value of the bonds you hold. Thank goodness you bought that insurance against default which has risen as the bonds have fallen. But here's the rub, the guy you bought the insurance from (AIG and countless others) cannot afford to pay you. They are insolvent. Suddenly your balance sheet looks terrible. The bonds you held are now worth 20 cents on the dollar and your insurance is worthless.

Now multiply this across thousands of financial institutions around the world. Even the safest institutions are STILL exposed to systemic risk which they cannot hedge away (you can't solve a derivatives problem with more derivatives in the same way the U.S. government can't solve a debt crisis with more debt. Doh!)

A very big problem. I think this is why guys like Steve Cohen have shut down their big operations for the year. A quick plunge in the DOW to 6000 is not unimaginable (S&P 500 earnings for 2009 are projected at $50, slap a 12 multiple on it and you get 600 on the index. Some bear markets tough at even lower multiples and given the extremes we've seen, it is certainly possible)
More...

I like how you put it, your post is very logical, thanks for the clear description
 
T his was discussed on 60min last Sunday. The Interviewer asked the Analyst.......so CDS is like insurance......

and the Analyst said yes....but they do not call it insurance because then it will have to be regulated.


It started with Lehman.....now let's see what else is in store. Seems a new variable is introduced to the Fallout equation every other week.
 
Quote from Dannazione:

I like how you put it, your post is very logical, thanks for the clear description
More...

yes, its a good example how informative ET can be. Nice work pals,
 
First a shout out to Pabst, this guy rocks, and I think (as everyone knows now) was spot on with assessment earlier in the thread.

Now I do have one lingering thought. As was mentioned, many of these positions were off setted. What I'd like to know is to what percentage? If Lehman's recent sale was any indicator, could we say north of 60%? I'm curious on this, anyone have an idea?
 
You must log in or register to reply here.
Back
Top