Posted: Fri Jul 25, 2008 10:34 am Post subject: Re: Housing & Economic Collapse - In Progress - #2
This is the beginning of a deflationary spiral. Yes, we've had high inflation, but back away and see what is happening :
Captial, cash, has suddenly become precious. Difficult to find, and those with it demand a high return. Money is a commodity, and like all commodities is subject to supply and demand forces...
The Fed only pumps money out by making loans. In order to make a loan, you have to have someone who is willing to pay it back. It's called pushing on a string. _________________ Welcome to the Kondratieff Winter
Posted: Fri Jul 25, 2008 10:40 am Post subject: Re: Housing & Economic Collapse - In Progress - #2
DantesPeak wrote:
The perceived financial condition of WaMu continues to deteriorate, with credit default sellers now wanting 15% upfront payment on the amount of WaMu debt covered.
That was yesterday. It's at 17.5% now.
"Credit default swap spreads on WaMu's debt traded at 17.5% upfront. That's up from roughly 14% upfront late Thursday, according to Phoenix Partners Group. "
Posted: Fri Jul 25, 2008 10:43 am Post subject: Re: Housing & Economic Collapse - In Progress - #2
seahorse wrote:
The analogy still stands, as it appears that Europe and the west will be hardest hit.
Club Med and the UK for sure. Financial services and construction were arguably the most important parts of the British and Spanish economies in recent years, and the government as an employer - very important in Europe - is closely coupled to that. With few exceptions it only spends what it collects in taxes or obtains through financing. The credit crunch is a double-whammy.
The UK will get it three times over, due to its status as one of the world's premier financial centres. As a nation, we milked it on the way up and pissed it away as quickly, so there is no use pretending our exposure will not work as well in reverse on the way down. There is no hanging in mid-air now that we have placed the City at the centre of our economy. The much-vaunted UK plc is a bank. We earn much of our wealth by managing a disproportionate share of other people's money and levying fees. We tax other people's economic activity. We need transactions. We contrive domestic and international legislation and regulation in such a way that the City always receives a role and gets its cut. Our enthusiasm for Byzantine carbon trading schemes and renewable obligations instead of the blunt instrument of straight subsidies more often implemented across the Channel is one energy-related example. The taxes paid on income from fees earned for advising on some foreign M&A deal buys us continued health cover. So if people all over the world batten down the hatches, park their money and sit, we are going to lose a valuable source of income and employment.
By the way, what I said last year about stamp duty and inheritance tax revenue drying up is coming to pass. No link, but a week or two ago I read in the Guardian or Observer that the government is losing hundreds of millions of pounds in funding due to falling estate valuations. Note that in the bubble years it gave them billions of pounds of real cash directly earned from higher personal indebtedness.
DantesPeak wrote:
The perceived financial condition of WaMu continues to deteriorate, with credit default sellers now wanting 15% upfront payment on the amount of WaMu debt covered.
If that does not defuse quickly, there might be a move this weekend or the next. Unlike BSC or LEH, allowing a retail outfit to drift powerless at the mercy of news flow carries a risk of contagion. An anxious public is less easily calmed than institutions - you cannot just arrange a conference call.
Jotapay wrote:
You guys saw that the Aussie bank NAB marked their CDOs to market and took a 90% or $900M loss, right? Once the American markets digest that, it will blow out the levees that the Fed and Treasury have been building for several months now.
That cat may be out of the bag, but it will take a while because regulators are now coordinating policy. Witness the FSA's role as a whip in the A&L takeover and underwriting of B&B's rights issue, and Lloyd's TSB's participation in the latter. By all accounts they remained boring and their subprime holdings negligible, yet there they are being forced to prop up a self-cert and BTL lender. They probably could have marked their bad paper all the way to zero months ago, but that would not be helpful as befits a team player, would it? _________________ "The American people are watching the numbers climb higher and higher at the pump and they're waiting to see what the Congress will do." - George W Bush
Last edited by Twilight on Fri Jul 25, 2008 11:00 am; edited 1 time in total
Posted: Fri Jul 25, 2008 10:56 am Post subject: Re: Housing & Economic Collapse - In Progress - #2
shady28 wrote:
DantesPeak wrote:
The perceived financial condition of WaMu continues to deteriorate, with credit default sellers now wanting 15% upfront payment on the amount of WaMu debt covered.
That was yesterday. It's at 17.5% now.
Scary quotes, I wonder what the volume is like. Do CDS insure against seizure as well as default, or is that a knife-catching move if it comes to be perceived as likely?
Joined: Oct 23, 2004 Posts: 5899 Location: New Jersey
Posted: Fri Jul 25, 2008 12:34 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
Twilight wrote:
shady28 wrote:
DantesPeak wrote:
The perceived financial condition of WaMu continues to deteriorate, with credit default sellers now wanting 15% upfront payment on the amount of WaMu debt covered.
That was yesterday. It's at 17.5% now.
Scary quotes, I wonder what the volume is like. Do CDS insure against seizure as well as default, or is that a knife-catching move if it comes to be perceived as likely?
By the way shady, good to see a rare mention of credit deflation around here. The problem with printing into a vacuum is assuming the vacuum, or so it seems to me.
I believe the CDS are necessary because WaMu has a lot of unsecured debt, which I mentioned previously would not be covered by a FDIC takeover - or possibly even by a takeover by a larger bank.
I also believe that a government seizure would have much the same effect as a default for the CDS. The US government is not going to bail out bondholders here. BTW - shareholders and subordinated debt holders of Fannie/Freddie are also in for a surprise if they think the bailout bill before Congress is going to save them.
WaMu put out a statement as to "liquidity". I am not sure how they define liquidity here.
Quote:
MidnightTrader
July 25, 2008
Washington Mutual Swats at Liquidity Rumors; Shares Regain Some Ground
Boston, Jul 25, 2008 (MidnightTrader via COMTEX News Network) -- Washington Mutual (WM) is down almost 3% as it struggles to weather rumors that it could be facing liquidity problems, which battered its stock yesterday.
In an effort to swat down the rumors, the nation's largest thrift said in a mid-day statement that it had increased available liquidity to more than $50 billion, up $10 billion over its previously announced figure.
Shares have fallen more than 30% this week, with most of the decline coming yesterday. This morning shares fell to a session low of $3.48 at the bell, but have been recovering for most of the morning.
[no link] _________________ It's already over, now it's just a matter of adjusting.
Posted: Fri Jul 25, 2008 2:32 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
shady28 wrote:
This is the beginning of a deflationary spiral. Yes, we've had high inflation, but back away and see what is happening :
Captial, cash, has suddenly become precious. Difficult to find, and those with it demand a high return. Money is a commodity, and like all commodities is subject to supply and demand forces...
The Fed only pumps money out by making loans. In order to make a loan, you have to have someone who is willing to pay it back. It's called pushing on a string.
Need to back away a bit more. 50% of the US housing market is less than 24hrs away from being nationalized.
Fed can only pump out money by making loans. Well with National Banks, Investment Banks, Hedge funds, and now GSE's able to withdraw from the Fed Window there's a growing line of pigs bellying up to the trough. Pretty soon you will be able to join them
Just take the stimulus check as an example (a gift from the tax payer, to the tax payer, to pay off the banks). Instead of a public outcry at such a ludicrous idea, the only debate was that it should be more.
My premise is very simple:
"The worlds largest Debtor nation in control of the world's reserve currency will never allow deflation".
but if that is not enough to convince you.
"A morally and financially bankrupt populace will not do the necessary sacrifices to allow deflation"
or
"A corrupt and self-serving government will not have the restraint to allow deflation"
The list goes on. The US of 2008 is not the Japan of 1992
Posted: Fri Jul 25, 2008 2:52 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
DantesPeak wrote:
I believe the CDS are necessary because WaMu has a lot of unsecured debt, which I mentioned previously would not be covered by a FDIC takeover - or possibly even by a takeover by a larger bank.
I, for the life of me, can't figure out a scenario where someone would say, "Well the US Treasury just defaulted on all it's securities, but lucky me I'm protected by a credit default swap." If the Treasury is defaulting on it's securities, the rule book just went out the window right? _________________ "So while you sit and whistle Dixie with your money and your power.
I can hear the flowers a-growin in the rubble of the towers.
I hear leaders quit their lying
I hear babies quit their crying.
I hear soldiers quit their dying, one and all." - OCMS
Posted: Fri Jul 25, 2008 3:04 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
FoxV wrote:
Need to back away a bit more. 50% of the US housing market is less than 24hrs away from being nationalized.
Fed can only pump out money by making loans. Well with National Banks, Investment Banks, Hedge funds, and now GSE's able to withdraw from the Fed Window there's a growing line of pigs bellying up to the trough. Pretty soon you will be able to join them
Just take the stimulus check as an example (a gift from the tax payer, to the tax payer, to pay off the banks). Instead of a public outcry at such a ludicrous idea, the only debate was that it should be more.
Everything you list are loans - and the Fed Window is a 90 day loan. These things all come to roost rather quickly, and the amounts that the fed is pumping right now are a pittance compared to the interest on what is already out there (Because what is out there in loans is in the tens of trillions). Net negative money flow.
It's possible, even likely, the Fed will actually start 'printing money' and doing the 'Helicopter Ben' trick. So far they have not done that. It's likely that when they do, it will be mandated by the Congress at the behest of the public. It will be the next phase, not the current one.
ie, a knee jerk reaction that hasn't happened yet.
Between now and then, you get deflation. It's not really a theory at the moment, look here, deflation rapid and sudden reflected in the truest benchmark of the value of the dollar, commodities. Everyone is so worked up about inflation, they have failed to see an in progress collapse in commodities :
Joined: Oct 23, 2004 Posts: 5899 Location: New Jersey
Posted: Fri Jul 25, 2008 3:12 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
smallpoxgirl wrote:
DantesPeak wrote:
I believe the CDS are necessary because WaMu has a lot of unsecured debt, which I mentioned previously would not be covered by a FDIC takeover - or possibly even by a takeover by a larger bank.
I, for the life of me, can't figure out a scenario where someone would say, "Well the US Treasury just defaulted on all it's securities, but lucky me I'm protected by a credit default swap." If the Treasury is defaulting on it's securities, the rule book just went out the window right?
If the US defaulted, it's not clear exactly how you would get paid off on your CDS.
Perhaps more interesting is that F & F wrote many CDS on themselves. Exactly how would you collect on that if they defaulted, since the US government probably wouldn't?
I think the question is not whether they pay off, but whether the integrity of the CDS contacts is maintained. In other words, the US can not let F & F - or itself - default. Otherwise a derivative nuclear chain reaction would start, causing a worldwide financial meltdown. _________________ It's already over, now it's just a matter of adjusting.
Posted: Fri Jul 25, 2008 4:04 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
smallpoxgirl wrote:
I, for the life of me, can't figure out a scenario where someone would say, "Well the US Treasury just defaulted on all it's securities, but lucky me I'm protected by a credit default swap."
Thankfully my drink was on the table when I read that. I would have needed a new keyboard.
FoxV wrote:
Well with National Banks, Investment Banks, Hedge funds, and now GSE's able to withdraw from the Fed Window there's a growing line of pigs bellying up to the trough. Pretty soon you will be able to join them
That is the $6.4 trillion question, isn't it? Because new money supply does no-one any good when it is as shady points out, potentially insufficient to cover existing carnage, and sterilised by the banks' refusal to extend it to borrowers. To extend an analogy, maybe the central banks are not pushing on a string, but on a rod with a shock absorber in the middle. We would have to see state-issued consumer lines of credit not offset against future taxes issued en masse to settle that argument. Either that or the banks start lending again, but I see little evidence of it, the trend is in the opposite direction. _________________ "The American people are watching the numbers climb higher and higher at the pump and they're waiting to see what the Congress will do." - George W Bush
Joined: Dec 07, 2005 Posts: 1855 Location: Australia
Posted: Fri Jul 25, 2008 5:38 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
[quote="shady28
Everything you list are loans - and the Fed Window is a 90 day loan. These things all come to roost rather quickly, and the amounts that the fed is pumping right now are a pittance compared to the interest on what is already out there (Because what is out there in loans is in the tens of trillions). Net negative money flow.
[/quote]
Just want to add the comment that the 90day loans are likely to be rolled over indefinetly. There is no point in demanding repayment when this just would result in default. _________________ Lets take a ride, and run with the dogs tonight
In suburbia
You cant hide, run with the dogs tonight
In suburbia
- Pet Shop Boys
Posted: Fri Jul 25, 2008 6:09 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
DantesPeak wrote:
If the US defaulted, it's not clear exactly how you would get paid off on your CDS.
Isn't that the point of the CDS? I have shady bonds in WaMu. So I go buy CDS on those bonds from Chase bank. So I rest easy knowing that if WaMu defaults, Chase will cover my bond.
I'm just trying to figure out who is buying CDS on T-Bills and why? I can't imagine who you would trust to pay off in that scenario.
Quote:
Perhaps more interesting is that F & F wrote many CDS on themselves.
How do you write a CDS on yourself? _________________ "So while you sit and whistle Dixie with your money and your power.
I can hear the flowers a-growin in the rubble of the towers.
I hear leaders quit their lying
I hear babies quit their crying.
I hear soldiers quit their dying, one and all." - OCMS
Posted: Fri Jul 25, 2008 6:23 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
smallpoxgirl wrote:
I'm just trying to figure out who is buying CDS on T-Bills and why? I can't imagine who you would trust to pay off in that scenario.
Someone (some pension funds?) might be required to have insurance on all bonds they hold, due to an operating charter or something, and where there is a market, there is a price. These are nominal of course. I would guess it is a limited market and the issuers probably regard the premiums as free money.
smallpoxgirl wrote:
How do you write a CDS on yourself?
Being facetious here, but maybe they sell you a bond, and for a little extra they will put you at the head of the queue if they default.
Joined: Oct 23, 2004 Posts: 5899 Location: New Jersey
Posted: Fri Jul 25, 2008 9:39 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
WaMu appears to have been bailed out by the Fed, so far at least.
This may be a departure from previous policies of only lending on good and sufficient collateral to banks that are likely to pay back the loan in a relatively short time.
Quote:
WaMu reveals $10bn capital buffer
By Francesco Guerrera and Nicole Bullock in New York
Published: July 26 2008 00:14 | Last updated: July 26 2008 00:14
Washington Mutual, the troubled US regional lender, on Friday revealed it had raised an extra $10bn in fresh capital since the end of June in an effort to quell continued speculation over its financial health.
WaMu told the Financial Times the extra capital would bring the total amount of cash and liquid securities on its balance sheet to more than $50bn. The funds were borrowed from the Federal Reserve’s discount window, the Federal Home Loan Banking system – a network of local lenders – and open market operations.
BTW - no pushing on a string here. I see deflation as almost impossible with our present monetary system. _________________ It's already over, now it's just a matter of adjusting.
Joined: Oct 23, 2004 Posts: 5899 Location: New Jersey
Posted: Fri Jul 25, 2008 9:51 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
smallpoxgirl wrote:
How do you write a CDS on yourself?
Apparently for Fannie, it's easy, and I suppose profitable, but that $2 trillion potential liability may give the Fed and Treasury headaches at night.
Quote:
Fannie Mae MBS Transactions and Other Financial Guarantees
As described in our 2007 Form 10-K, our maximum potential exposure to credit losses relating to our outstanding and unconsolidated Fannie Mae MBS held by third parties and our other financial guarantees is significantly higher than the carrying amount of the guaranty obligations and reserve for guaranty losses that are reflected in the consolidated balance sheets. In the case of outstanding and unconsolidated Fannie Mae MBS held by third parties, our maximum potential exposure arising from these guaranty obligations is primarily represented by the unpaid principal balance of the mortgage loans underlying these Fannie Mae MBS, which was $2.2 trillion and $2.1 trillion as of March 31, 2008 and December 31, 2007, respectively. In the case of the other financial guarantees that we provide, our maximum potential exposure arising from these guarantees is primarily represented by the unpaid principal balance of the underlying bonds and loans, which totaled $40.8 billion and $41.6 billion as of March 31, 2008 and December 31, 2007, respectively.
SEC Filing - Fannie Mae _________________ It's already over, now it's just a matter of adjusting.
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