W
What Me Worry?
Guest
Who's absorbing the other $499 TRILLION in losses from the collapse of the
derivatives market?
http://www.marketoracle.co.uk/Article4037.html
Excellent quote from this eye-popping article: ""The world's credit system
is a vast recycling bin of untraceable transactions of wildly inflated
value."
Anybody care to comment?
Will we call it the Great Bush-Cheney Market Collapse of 2008?
"4005 Dead" <zeppp@finestplanet.com> wrote in message
news:nvj2v39h95g0nijiua8tcqsg2b5mdhetjk@4ax.com...
>
> http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aHCnscodO1s0
>
> Brace for $1 Trillion Writedown of `Yertle the Turtle' Debt
>
> Review by James Pressley
> More Photos/Details
>
> March 31 (Bloomberg) -- Be it ever so devalued, $1 trillion is a lot
> of dough.
>
> That's roughly on a par with the Russian economy. More than double the
> market value of Exxon Mobil Corp. About nine times the combined wealth
> of Warren Buffett and Bill Gates.
>
> Yet $1 trillion is the amount of defaults and writedowns Americans
> will likely witness before they emerge at the far side of the bursting
> credit bubble, estimates Charles R. Morris in his shrewd primer, ``The
> Trillion Dollar Meltdown.'' That calculation assumes an orderly
> unwinding, which he doesn't expect.
>
> ``The sad truth,'' he writes, ``is that subprime is just the first big
> boulder in an avalanche of asset writedowns that will rattle on
> through much of 2008.''
>
> Expect the landslide to cascade through high-yield bonds, commercial
> mortgages, leveraged loans, credit cards and -- the big unknown --
> credit-default swaps, Morris says. The notional value for those swaps,
> which are meant to insure bondholders against default, covered about
> $45 trillion in portfolios as of mid-2007, up from some $1 trillion in
> 2001, he writes.
>
> Morris can't be dismissed as a crank. A lawyer, former banker and
> author of 10 other books, he knows a thing or two about the complex
> instruments that have spread toxic debt throughout the credit system.
> He once ran a company that made software for creating and analyzing
> securitized asset pools. Yet he writes with tight clarity and
> blistering pace.
>
> The financial innovations of the past 25 years have done some good,
> Morris notes. Collateralized mortgage obligations, invented in 1983,
> saved homeowners $17 billion a year by the mid-1990s, according to one
> study.
>
> Slicing and Dicing
>
> CMOs transformed the business by slicing pools of mortgages into
> different bonds for different risk appetites. Top-tier bonds had the
> first claim on all cash flows and paid commensurately low yields. The
> bottom tier was the first to absorb all the losses; it paid yields
> resembling those on junk bonds.
>
> What began as a good thing, though, soon spawned a bewildering array
> of new asset classes that spread throughout the financial system,
> marbling balance sheets with what Morris calls inflated valuations,
> hidden debt and ``phony triple-A ratings.'' The more the quants
> fine-tuned the upper tranches of CMOs and other collateralized debt
> obligations, the more dangerous the bottom slices grew. Bankers began
> calling it ``toxic waste.''
>
> Guess where the toxins wound up? That's right: Credit hedge funds are
> now the weakest link in the chain, Morris says. Their equity stands at
> some $750 billion and is so massively leveraged that ``most funds
> could not survive even a 1 percent to 2 percent payoff demand on their
> default swap guarantees,'' he writes.
>
> `Utter Thrombosis'
>
> Morris sketches a scenario in which hedge fund counterparty defaults
> would ripple through default swap markets, triggering writedowns of
> insured portfolios, demands for collateral, and a rush to grab cash
> from defaulting guarantors. The credit system would suffer ``an utter
> thrombosis,'' he says, making the subprime crisis ``look like a walk
> in the park.''
>
> As bankers and regulators try to prop up the ``Yertle the Turtle-like
> unstable tower of debt,'' Morris points to two previous episodes of
> lost market confidence.
>
> The first was the 1970s inflationary trauma that prompted investors to
> suck money out of the stocks and bonds that finance business.
> Confidence returned only after Fed chief Paul Volcker slew runaway
> inflation by ratcheting up interest rates.
>
> The other precedent is the popped 1980s Japanese asset bubble. In that
> case, politicians and finance executives tried to paper over their
> troubles. Two decades later, Japan still hasn't recovered, Morris
> writes.
>
> We should be as bold as Volcker, he suggests: Face the scale of the
> mess, take a $1 trillion writedown and shore up regulatory measures.
> His recommendations include forcing loan originators to retain the
> first losses; requiring prime brokers to stop lending to hedge funds
> that don't disclose their balance sheets; and bringing the trading of
> credit derivatives onto exchanges.
>
> What he fears is that the U.S. will instead follow the Japanese
> precedent, seeking to ``downplay and to conceal. Continuing on that
> course will be a path to disaster.''
>
> ``The Trillion Dollar Meltdown: Easy Money, High Rollers and the Great
> Credit Crash'' is from PublicAffairs (194 pages, $22.95).
>
> (James Pressley writes for Bloomberg News. The opinions expressed are
> his own.)
>
> To contact the writer of this review: James Pressley in Brussels at
> jpressley@bloomberg.net.
> Last Updated: March 31, 2008 01:31 EDT
>
>
> "I want justice...There's an old poster out West, as I recall, that
> said, 'Wanted: Dead or Alive,'"
> - G.W. Bush, 9/17/01, UPI
>
>
> "I don't know where bin Laden is. I have no idea and really don't care.
> It's not that important. It's not our priority."
> - G.W. Bush, 3/13/02
>
> Pay your taxes so the rich don't have to.
>
> For the best in liberal/leftist commentary, visit
> www.zeppscommentaries.com
derivatives market?
http://www.marketoracle.co.uk/Article4037.html
Excellent quote from this eye-popping article: ""The world's credit system
is a vast recycling bin of untraceable transactions of wildly inflated
value."
Anybody care to comment?
Will we call it the Great Bush-Cheney Market Collapse of 2008?
"4005 Dead" <zeppp@finestplanet.com> wrote in message
news:nvj2v39h95g0nijiua8tcqsg2b5mdhetjk@4ax.com...
>
> http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aHCnscodO1s0
>
> Brace for $1 Trillion Writedown of `Yertle the Turtle' Debt
>
> Review by James Pressley
> More Photos/Details
>
> March 31 (Bloomberg) -- Be it ever so devalued, $1 trillion is a lot
> of dough.
>
> That's roughly on a par with the Russian economy. More than double the
> market value of Exxon Mobil Corp. About nine times the combined wealth
> of Warren Buffett and Bill Gates.
>
> Yet $1 trillion is the amount of defaults and writedowns Americans
> will likely witness before they emerge at the far side of the bursting
> credit bubble, estimates Charles R. Morris in his shrewd primer, ``The
> Trillion Dollar Meltdown.'' That calculation assumes an orderly
> unwinding, which he doesn't expect.
>
> ``The sad truth,'' he writes, ``is that subprime is just the first big
> boulder in an avalanche of asset writedowns that will rattle on
> through much of 2008.''
>
> Expect the landslide to cascade through high-yield bonds, commercial
> mortgages, leveraged loans, credit cards and -- the big unknown --
> credit-default swaps, Morris says. The notional value for those swaps,
> which are meant to insure bondholders against default, covered about
> $45 trillion in portfolios as of mid-2007, up from some $1 trillion in
> 2001, he writes.
>
> Morris can't be dismissed as a crank. A lawyer, former banker and
> author of 10 other books, he knows a thing or two about the complex
> instruments that have spread toxic debt throughout the credit system.
> He once ran a company that made software for creating and analyzing
> securitized asset pools. Yet he writes with tight clarity and
> blistering pace.
>
> The financial innovations of the past 25 years have done some good,
> Morris notes. Collateralized mortgage obligations, invented in 1983,
> saved homeowners $17 billion a year by the mid-1990s, according to one
> study.
>
> Slicing and Dicing
>
> CMOs transformed the business by slicing pools of mortgages into
> different bonds for different risk appetites. Top-tier bonds had the
> first claim on all cash flows and paid commensurately low yields. The
> bottom tier was the first to absorb all the losses; it paid yields
> resembling those on junk bonds.
>
> What began as a good thing, though, soon spawned a bewildering array
> of new asset classes that spread throughout the financial system,
> marbling balance sheets with what Morris calls inflated valuations,
> hidden debt and ``phony triple-A ratings.'' The more the quants
> fine-tuned the upper tranches of CMOs and other collateralized debt
> obligations, the more dangerous the bottom slices grew. Bankers began
> calling it ``toxic waste.''
>
> Guess where the toxins wound up? That's right: Credit hedge funds are
> now the weakest link in the chain, Morris says. Their equity stands at
> some $750 billion and is so massively leveraged that ``most funds
> could not survive even a 1 percent to 2 percent payoff demand on their
> default swap guarantees,'' he writes.
>
> `Utter Thrombosis'
>
> Morris sketches a scenario in which hedge fund counterparty defaults
> would ripple through default swap markets, triggering writedowns of
> insured portfolios, demands for collateral, and a rush to grab cash
> from defaulting guarantors. The credit system would suffer ``an utter
> thrombosis,'' he says, making the subprime crisis ``look like a walk
> in the park.''
>
> As bankers and regulators try to prop up the ``Yertle the Turtle-like
> unstable tower of debt,'' Morris points to two previous episodes of
> lost market confidence.
>
> The first was the 1970s inflationary trauma that prompted investors to
> suck money out of the stocks and bonds that finance business.
> Confidence returned only after Fed chief Paul Volcker slew runaway
> inflation by ratcheting up interest rates.
>
> The other precedent is the popped 1980s Japanese asset bubble. In that
> case, politicians and finance executives tried to paper over their
> troubles. Two decades later, Japan still hasn't recovered, Morris
> writes.
>
> We should be as bold as Volcker, he suggests: Face the scale of the
> mess, take a $1 trillion writedown and shore up regulatory measures.
> His recommendations include forcing loan originators to retain the
> first losses; requiring prime brokers to stop lending to hedge funds
> that don't disclose their balance sheets; and bringing the trading of
> credit derivatives onto exchanges.
>
> What he fears is that the U.S. will instead follow the Japanese
> precedent, seeking to ``downplay and to conceal. Continuing on that
> course will be a path to disaster.''
>
> ``The Trillion Dollar Meltdown: Easy Money, High Rollers and the Great
> Credit Crash'' is from PublicAffairs (194 pages, $22.95).
>
> (James Pressley writes for Bloomberg News. The opinions expressed are
> his own.)
>
> To contact the writer of this review: James Pressley in Brussels at
> jpressley@bloomberg.net.
> Last Updated: March 31, 2008 01:31 EDT
>
>
> "I want justice...There's an old poster out West, as I recall, that
> said, 'Wanted: Dead or Alive,'"
> - G.W. Bush, 9/17/01, UPI
>
>
> "I don't know where bin Laden is. I have no idea and really don't care.
> It's not that important. It's not our priority."
> - G.W. Bush, 3/13/02
>
> Pay your taxes so the rich don't have to.
>
> For the best in liberal/leftist commentary, visit
> www.zeppscommentaries.com
