Credit Default Swaps (CDS)

[Adam]

www.topix.com/us/2008/09/king-george-and-comrade-paulson#comments
Dave in Coral Springs - Thursday September 25, 2008 11:59AM EDT
I have been monitoring the Congressional Hearings on TARP and I am dismayed at the fact that a core issue is not being brought to light. I hope you can bear with the frustrated tone of my message and pass this information to the public before our government hands over $700 billion. The common person is hearing more and more about the bailout and not understanding where the pressure is coming from to the credit markets because everything else seems fine. Although there are many foreclosures the total value of the loans defaulting isn't a number that by itself should be able to affect our national financial system so adversely, that is, until the common person learns about the Credit Default Swaps (CDS) derivatives market which is the true culprit behind this economic crisis. The CDS market is controlled by roughly 15 banks and firms. Our banking system is essentially in an abysmal hole of debt that was created not by the loans and foreclosures themselves but because of the non regulated hedge bets placed by large investment firms and banks that have turned the American economy into a poster child for gamblers anonymous. The most infuriating part of this is that the "gamblers" owe big money and the other banks and firms they owe money to have enough financial power to hold the entire country ransom until their bets have been covered. This strategy is no more complicated than tactics used by terrorists and gangsters. The "fragility" of our current markets is no more than the effect of an economy held for ransom. The tighter these 15 banks squeeze credit funding, the more pressure there is for the US government to pass the TARP bail out. Instead of holding a gun to someone's head these 15 banks are wielding a financial weapon against the United States Government. Not many people know or understand these dynamics but the sheer terroristic quality of the situation is an affront to me as an American taxpayer. IF you are ever curious and want to check the "odds" at the bookie's just refer to the CDR Counterparty Risk Index, which tracks credit-default swaps on leading banks and brokerage firms. Go ahead and Google it. IF the voting public do not push our leaders to do what is in our interest more of this is sure to come in the future since the bailout is really just somebody "paying up" for our own protection. <<<end of his post>>>>

Thank you very much Dave for that enlightenment. PEOPLE REPOST THIS EVERYWHERE AND SPREAD THE WORD. GRILL YOUR CONGRESSPERSON ABOUT THIS. THE CAT IS OUT OF THE BAG. "WE THE PEOPLE" ARE BEING COMPLETELY BAMBOOZLED BY THOSE WE ELECTED THAT ALREADY KNOW ABOUT THIS. WE ARE BEING HELD HOSTAGE BY "CREATURES" EVERY BIT AS EEEEEEVVVILLLLL AS ADOLPH HITLER!!!!! WHOEVER THESE "CREATURES" ARE WE NEED TO TRACK THEM DOWN AND CUT THEM OUT OF THE WORLD SYSTEM. THEY ARE PURE CANCEROUS ROT!!!!!!

[Adam]

CDR launches counterparty risk index
News Digest, 17 June 2008

Credit Derivatives Research has launched what it says is the first index designed to track the credit risk of the banks and brokers who are the counterparties in most of the contracts traded in the large and rapidly growing market for credit derivatives.

The new CDR Counterparty Risk index averages the market spreads of the credit default swaps of 15 major credit derivatives dealers, producing a market-based measure of the default risk of this group. The group includes ABN Amro, Bank of America, BNP Paribas, Barclays Bank, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs Group, HSBC, Lehman Brothers, JP Morgan, Merrill Lynch, Morgan Stanley, UBS, and Wachovia.
www.creditflux.com/digest/2008/06/17/cdr+launches+counterparty+risk+index.htm


CDR intros index to measure, hedge counterparty risk
Tue Jun 17, 2008 8:53pm IST


NEW YORK, June 17 (Reuters) - Credit Derivatives Research LLC, an independent credit research company, on Tuesday launched an index to measure, or hedge against, counterparty risk in the $62 trillion credit derivatives market.

Concerns over the ability of a bank or other counterparty to make good on a credit default swap contract peaked in March, before Bear Stearns Cos was taken over by JPMorgan Chase & Co (JPM.N: Quote, Profile, Research) in a Federal Reserve assisted bailout.

The index, dubbed the CDR Counterparty Risk Index, comprises the average spread of the largest 15 credit derivative counterparties and may be used to hedge against the risk of a counterparty failing, or to track perceptions of their credit quality.

"The biggest fear when you do a credit default swap contract is when somebody goes into default and you're expecting your $10 million back from the guy you trade with and they're not there to pay you that money," said Tim Backshall, chief strategist at Credit Derivatives Research in Walnut Creek, California.

When a company defaults on its debt the protection seller in a credit default swap contract, which is often a bank, pays the protection buyer the full amount insured.

The average credit spread of the 15 largest dealers, which represent more than 90 percent of volumes in the market, peaked at 250 basis points in March, compared to 25 basis points a year ago, though have since retreated to 100 basis points, according to CDR data.

"That risk is a low number still but it's a lot higher than it ever was before," said Backshall.

The counterparties included in the index are ABN Amro Bank, Bank of America Corp (BAC.N: Quote, Profile, Research), BNP Paribas (BNPP.PA: Quote, Profile, Research), Barclays Bank Plc (BARC.L: Quote, Profile, Research), Citigroup Inc (C.N: Quote, Profile, Research), Credit Suisse Group (CSGN.VX: Quote, Profile, Research), Deutsche Bank AG (DBKGn.DE: Quote, Profile, Research), Goldman Sachs Group Inc (GS.N: Quote, Profile, Research), HSBC Bank Plc (HSBA.L: Quote, Profile, Research), Lehman Brothers (LEH.N: Quote, Profile, Research) , JPMorgan, Merrill Lynch & Co (MER.N: Quote, Profile, Research), UBS AG (UBSN.VX: Quote, Profile, Research) and Wachovia Corp. (WB.N: Quote, Profile, Research)
in.reuters.com/article/marketsNewsUS/idINN1735025520080617

[Caligastia Lanonandek]

Dave

This situation isn't dissimilar to what happened in Black October in 1929. People had been playing the stock market in a big way and on credit. There was no requirement that a person have more than 10% of the stock value invested. Thus 90% of it was on credit. When the market crashed - people acquired big time debts.

The same is true today with commodities. If 50% of a contract were required, the oil speculators would be out of business. Back in the 70's, the Hunt Brothers cornered the silver market driving a 3 dollar an ounce commodity to 50 dollars an ounce and gold from 100 an ounce to 800 and ounce. I saw what was happening and dumped my holdings at the high water marks 24 hours before the bottom fell out of it.

These things are artificial in their creation and while the Hunt Brothers didn't effect the entire economy - the nationalization of housing will and its the average Joe Six Pack who is going to get hurt as happened in 1929.

The Republicans are trying to behave responsibility and not burden the public. The Democrats announced they had a 'deal'. They neglected to mention they hadn't discussed it with the republicans. The deal they forged also had loads of earmarks and typical democrat pork loaded into it and it placed the burden on the tax payer. They also intended that Obama walk out of the White House looking like the Messiah. Instead, he looked like he was 'present'. ie: an ignorant chump. Obama is redefining the term 'empty suit' downwards.

I would reiterate my prior suggestion. Get your cash out of the banks keeping only enough to pay your bills.

In 1929 - there was a 'bank holiday' as people made runs on the banks to get their money out. That means the banks closed and no one could get to their money. At the time, there was no FDIC and no insurance. If the bank bellied up - you were outta luck.

If we reach the point of having runs on banks, you'll see another holiday - with or without the FDIC.

Conversely, the people who made out like bandits from the crash were those who had cash on hand as desperate people had to sell assets at far beneath market values.

[Adam]

Conversely, the people who made out like bandits from the crash were those who had cash on hand as desperate people had to sell assets at far beneath market values.


Dave comment: Interesting history commentary Cal. Well its good to know that cash in hand will have to suffice. Hey brother can ya spare a dime, Tee shirt deal in the works.

[Caligastia Lanonandek]

Dave

The U.S., like many other countries, is wealthy in people and resources. Depressions are caused by an imbalance created from the greed of evil doers. When this happens, people get hurt and others (who had nothing to do with the creation of the problem) exploit the situation for their own continue security. Hence one of my corollaries. Exploit opportunities not people.