Desperation and irrelevance.

http://www.bloomberg.com/apps/news?pid=206...&refer=bond
Money-Market Rates Little Changed; Fed Auctions Cash

By Steve Rothwell and Gavin Finch

Dec. 17 (Bloomberg) -- The Federal Reserve's plan to provide $20 billion in cash to the world's money markets failed to reduce the cost of borrowing in euros.

The rate banks charge each other for three-month loans in euros stayed close to a seven-year high, rising 1 basis point to 4.95 percent, the European Banking Federation said today. That's 95 basis points more than the European Central Bank's interest rate. It was 4.58 percent a month ago.

Cgnao, any chance you could shorten your sig (maybe have it point to another post with all the relevant info), as it's longer than many of your posts. I like to catch up on my Blackberry on the train home, and it's a lot to scroll through.

Ta.

Mr King said this morning: "We're saying to the markets: 'Yes, we understand the deterioration in sentiment in the credit markets' ... and we're determined to make whatever steps are necessary to make sure there is no downturn in the world economy."

This is the mark of the derivative beast, which will devastate the international monetary system and therefore your salary, savings, mortgage, investments, pension for years to come unless you take drastic defensive action NOW.

This is 100% correct, guaranteed.
...
``It still looks like bankruptcy is inevitable.''
...

I start to consider again quitting my pension schemes. I originally wanted to stay in them, also I thought I am young enough to wheather it. But maybe these monthly payments are just completely wasted money. Only thing stopping me is the thought that they will come up with a rescue plan for pensions in the end, i.e. I would have to pay for all these other failed pensions anyway.

I'm surprised there hasn't been anymore stories released over the past couple of days or has no-one been watching

NEW YORK – Federal agency debt issuance increased by almost 20 percent to $820 billion in 2007 from $686.2 billion in 2006, Thomson Financial said Monday.

The issuance was driven by short-term notes and debt sold to replace securities that were called or retired.

Thomson includes debt maturing in 13 months or longer.

Margaret Kerins, agency analyst at RBS Greenwich Capital in Chicago, said callable issuance in 2007 represented about 56 percent of gross supply.

Short-dated issuance was also boosted by unusually heavy Federal Home Loan Bank system advances during the credit crisis, which cut off other funding alternatives for many banks. The FHLB financed those advances primarily with discount notes, which may be too short-term to be included in the Thomson numbers. But it also sharply increased its longer-term issuance.

FHLB advances jumped by more than $200 billion in 2007, compared with an average rise of $34 billion in the prior five years, Kerins wrote in an agency market outlook.

Analysts expect agency debt issuance could grow again in 2008, particularly if the portfolio growth caps on Fannie Mae and Freddie Mac are raised by their regulator.

The overseer, the Office of Federal Housing Enterprise Oversight, has indicated it could lift the limits it imposed by the end of February if the government-sponsored enterprises stay on track with timely reporting and remediation of accounting issues.

Fannie Mae and Freddie Mac sell agency securities to fund their mortgage purchase activity. That growth has been curtailed by the portfolio ceilings set by OFHEO after accounting scandals earlier this decade at each agency.

The net supply growth should stay contained in 2008, with excess capital still restrained and market conditions volatile, Kerins said.

“While some of the increase in capital (at Fannie Mae and Freddie Mac) due to the recent issuance of preferred stock may support growth, we expect that the majority is needed to prepare for a deteriorating mortgage market and increasing credit exposures,” she said.

The agency secondary market had a volatile year, as yield premiums whipped around with swap spreads in response to the credit and liquidity crises.

Agency supply in itself exerted minimal pressure and was typically met with heavy overseas investment.

Overseas central bank holdings of U.S. agency and mortgage-backed debt in 2007 surged by more than $230 billion, or about 39 percent, to a record $832 billion in the week ended Dec. 26, according to the Federal Reserve.

Countries rich with petrodollars stepped up their purchases of U.S. agency debt, according to analysts and the issuers.

Among individual underwriters, JPMorgan held its spot as the top underwriter in 2007, with a 10.3 percent market share, according to Thomson.

UBS was in second place, and Barclays Capital, the investment banking arm of UK lender Barclays, was in third, according to Thomson. UBS moved up from seventh place last year and Barclays from 10th place.

(Editing by Dan Grebler)

What are you waiting for before you decide to protect yourselves?

Soon conditions will turn disorderly and it will become much more difficult and expensive to do so.

http://business.timesonline.co.uk/tol/busi...icle3111659.ece

Professor Shiller, co-founder of the respected S&P Case/Shiller house-price index, said: "American real estate values have already lost around $1 trillion [£503 billion]. That could easily increase threefold over the next few years. This is a much bigger issue than sub-prime. We are talking trillions of dollars' worth of losses."

Deflation then

MUHAHAHAHAHHAHAHHAHAHAHAHAHHAHAHAHAHHAHAHAHAHAH

(In a jealous huff) Oh answer 'his' post will you but not MINE eh?

Enough of the mwa-haaing and tell me what you mean by 'protect yourself'

This is how the derivative beast will devastate the value of your share portfolio for many years to come.

This is 100% correct, guaranteed.

http://news.bbc.co.uk/2/hi/business/7167409.stm
Plug is pulled on Blackstone deal

A company that private equity firm Blackstone was aiming to buy for $1.8bn has ended the deal on the basis that Blackstone could not raise the funds.

Blackstone and industrial giant General Electric (GE) agreed in March last year to buy PHH, a US provider of mortgages and fleet management services.

But PHH said the sale had been terminated because it could not be completed by 31 December as agreed.

In the wake of the credit crisis, funding deals has become tougher.

In recent years, firms such as Blackstone have used cheap credit from banks to fund a takeover spree that has pushed up stock markets and thrust the private equity sector into the spotlight.

But higher interest rates and record mortgage defaults in the US sub-prime sector means cheap credit is now harder to access.

The Fed again pledged to continue the auctions "for as long as necessary.

Running out of cash, blame fraud and cut the amount customers can withdraw.

Any guy can tell you that sitting on more than two hundred dollars in twenties is not very comfortable. This limit should not affect most people.

Does that not highlight just how stupid the situation has become, mortgages and fleet management providers

This is the mark of the derivative beast. Protect yourselves.

http://www.bloomberg.com/apps/news?pid=206...&refer=bond
Banks May Need to Boost Reserves Against Losses, Moody's Says

Jan. 7 (Bloomberg) -- Banks may be required to set aside more capital to offset the risk of losses on collateralized debt obligations and other complex securities, according to Moody's Investors Service.

``The combination of financial innovation, opacity and leverage is generally explosive,'' analysts led by Pierre Cailleteau in London wrote in a report published today. ``More capital buffers will be needed or required by counterparties and regulators.''

Banks sold $469 billion of CDOs last year after a record $769 billion in 2006, according to JPMorgan Chase & Co. The falling value of the securities and other assets linked to U.S. subprime mortgages forced financial companies to write down more than $80 billion worldwide as defaults soared last year.

Banks may have to allocate more cash reserves to allow for greater fluctuation in the value of structured credit products, wrote Cailleteau, Moody's chief international economist. CDOs bundle together debt and other assets and use the income to pay investors.

Moody's, Standard & Poor's and Fitch Ratings have been criticized for giving investment-grade rankings to structured securities linked to subprime mortgages. The Securities and Exchange Commission is investigating whether they were ``unduly influenced'' by issuers and underwriters who paid for ratings, Chairman Christopher Cox said in September.

Victoria Finance SIV Debt Cut to Junk After Asset Values Tumble

By Neil Unmack

Jan. 8 (Bloomberg) -- Victoria Finance Ltd., a $6 billion structured investment vehicle managed by New York-based Ceres Capital Partners LLC, had its investment-grade ratings cut 13 levels to junk after the value of its assets slumped.
...
The waiver expired yesterday and creditors may now push the SIV into enforcement, which could require it to liquidate assets, S&P said.
...

Moody's, Standard & Poor's and Fitch rating services have affirmed their AAA financial strength rating of MBIA

LOL!

As long as they rate it AAA, it IS AAA. If they rated it AA, it would plunge to junk. The problem with these agencies is, that it is THEM who move the markets. No objective observing/rating possible here. It's a little like quantum physics. You can't measure without influencing the system. Only, this is much deeper doo doo than quantum physics.

Pimco's Gross Warns Default Swaps Could Trigger Subprime-Like Losses (Update)

13:44 01/08 (CEP News) Montreal - Pimco's Bill Gross says there will be winners and losers when $500 billion in credit default swaps are triggered this year but the losers "in many cases won't be back for a rematch", contributing to a collapse of the "pyramid scheme" of leveraged finance.

The comments come in Gross' January 2008 Investment Outlook, titled Pyramids Crumbling, which he released Tuesday on Pimco's website.

Gross, who manages the world's biggest bond fund, calls for a U.S. recession in 2008 after $200-$400 billion in mortgage-related writedowns are compounded by $250 billion in credit default swap losses and prospective losses in commercial real estate and credit cards.

"You have a recipe for a contraction in credit leading to a recession," he wrote.

As he has for several months, Gross focuses on the unwinding of complex financial derivatives that he calls the 'shadow banking system' as the source of impending peril. In an email response for comment, Gross said speculator losses will clip the appetite for risk-spreading derivatives.

"The impact will be felt via a retreat in new issuance in the derivative-based shadow banking system, as defaults occur and one side of the levered CDS trade produces losers, the financial system as it exists today will stop making new loans much like the oldtime bank of Jimmy Stewart would stop making home loans," he wrote. "That in combination with increasing regulation will act to slow/reverse economic growth."

In his Investment Outlook, Gross likens the credit default swap market to the one that spurred foolish subprime lending practices and calls it "perhaps the most egregious offender" in the new lending system.

Credit default swaps are an instrument used to insure corporate bonds against default. Gross notes the CDS market is a zero-sum game but warns uneducated spectators will be on the losing side of the market, as they were with subprime CDOs.

"Of course, 'buyers of protection' will be on the other 'winning' side, but the point is that as capital gains and capital losses slosh from one side of the shadow system's boat to the other, casualties and shipwrecks are the inevitable consequence. Goldman Sachs wins? Fine, but the losers in many cases will not be back for a return match," Gross wrote.

Gross compares new financial market instruments to a pyramid scheme that will collapse and leave markets starving for credit.

"Market based, regulation-lite American style capitalism, seemingly so ascendant after the dot.com madness nearly a decade ago, has met its match with the subprimes and the poorly structured and supervised derivative conduits of today's markets," he wrote.

In similar fashion to the subprime CDO market and Canada's asset-backed commercial paper market, Gross said many of the losses will stem from "protection selling", perhaps as liquidity dries up or ratings downgrades trigger automatic selling.

Using the $45 trillion estimate of outstanding investment grade and junk bonds from the Bank for International Settlements, Gross estimates $250 billion in losses.

"If total investment grade and junk bond defaults approach historical norms of 1.25% in 2008 then $500 billion of these default contracts will be triggered resulting in losses of $250 billion or more to the 'protection selling' party once recoveries are inserted into the equation," he wrote, noting the economic contraction will result from a pullback in aggregate lending.

Gross was somewhat unclear about what will ultimately trigger the collapse, but RBC Capital Markets fixed income strategist T.J. Marta said a massive bankruptcy, such as the Tuesday's rumoured collapse of Countrywide Financial, could spark a chain reaction.

"What he's talking about is the cascading effect . We don't know when it will hit but it will be a mechanical-type explosion," he told CEP News.

Marta said a ratings downgrade of a U.S. bond insurer such as MBIA or Ambac could spark downgrades of insured bonds and lead to a fire sale. A downgrade could also force a major bond insurer into bankruptcy leading to fears of further defaults and dramatic declines in credit default swaps.

By Adam Button, abutton@economicnews.ca, edited by Nancy Girgis, ngirgis@economicnews.ca

Its times like these you feel glad you didn't opt for a traditional pension fund.. Much of these losses are going to be buried under the carpet for years and years and years, and then when people retire they wonder why they've had such lousy returns on their pension fund for the last 20 years.. ..and why their fund managers retire so much richer than they do..

The $500 trillion derivative mountain is shaking badly and will collapse. This is 100% correct, guaranteed.

What are you waiting before you decide to protect yourselves? What will be your excuse for failing to do so?

Notional value becomes real value when the loser in the derivative trade can't perform on the obligation.

The $500 trillion derivative mountain is shaking badly and will collapse. This is 100% correct, guaranteed.

Er, no, that's 100% incorrect, guaranteed.

Edit: Just for clarification: a default on a CDS can expose the protection giver to the notional value of the underlying. This post was directed at the idea that the oft-quoted $500 trillion of notional OTC derivatives contracts could become real if all counterparties failed. The CDS market is only a small part of the overall derivatives market.

Er, no, that's 100% incorrect, guaranteed.

There's no sure-fire method of measuring systemic derivatives risk, but as a general rule when the loser in the derivative trade can't perform on the obligation then logically the counterparty is exposed to the in-the-money open market value of the contract.

At June 2007 the notional value of outstanding OTC derivatives as measured by the BIS was $516 trillion. That notional value is useful for measuring the size and growth of the OTC derivatives market, but it's a pretty meaningless figure in terms of actual risk exposure. It's called 'notional' because the amount doesn't really exist - it's just a value against which the obligations on the contract are computed against.

In June the BIS valued the gross credit risk (GCR) of all outstanding OTC contracts (i.e. the cost of replacing all open contracts at the prevailing market prices) at $11 trillion. That figure is down quite a bit from a few years ago when GCR was running at around 4.5% of notional - this was due to the low volatility and stability of interest rates and currency movements at the time (remember this was six months ago). It's likely that GCR has risen considerably since then, but I doubt it's more than $20 trillion.

Then you need to remember that this is gross credit risk. Counterparty netting arrangements probably reduce that gross value to 20% or less, so we're perhaps talking about $4 trillion or so.

Now, I'm not downplaying the danger of derivatives here, and Warren Buffett is quite right when he calls them 'financial weapons of mass destruction'. It's quite possible that cascading defaults on even a relatively minor derivatives failure could send violent shockwaves through the financial system, but we need to get away from this $500 trillion figure as some sort of indication of what losses might be sustained in the worst case scenario.

Let's keep it real. Things are bad enough as they stand at present without the added hyperbole.


Edit: Just for clarification: a default on a CDS can expose the protection giver to the notional value of the underlying. This post was directed at the idea that the oft-quoted $500 trillion of notional OTC derivatives contracts could become real if all counterparties failed. The CDS market is only a small part of the overall derivatives market.

Just one small thing - the protection giver will be liable for notional - recovery rate (typically 40%). Surely you should be concerned with the outstanding notional as well the GCR?