http://online.wsj.com/article/SB1205695986...s_us_whats_news

as has been asked on the excellent tickerforum.org, what would 20 bucks a share imply about the valuation of the other IB's, esp. Lehman?

this really is desparate. i wonder if they'll carry it off.

Enron appear fluffy and small lately

as of Sun Mar 16 22:12:26 UTC

USD crashing

GBP crashing more than USD

Is a British bank in big trouble then?

What makes you think just one?

you did indeed cgnao, thanks very much.

Who's been playing counterparties with BSC?

A thread on the ticker mentioned the next possible casulty as Lehman brothers. Reason given was they were the IB with
Most counter party relationships with Bear Sterns, so stood to loose the most out of any collapse.

All so Cgnao's post today regarding a deal being thrashed out between JP Morgan and Bear before opening trades in Asian markets,

If [and that’s a big if] it is pulled off we will once again see a large one day Rally in stocks, However these ever more desperate attempts to keep the system from final collapse do not solve the underlying issues, they just add more layers and more problems.

IMHO when this does all finally unwind expect a single days fall in excess of 20% on the DOW and FTSE. [I know it may appear sensationalist but i would not rule out a 50% single day fall]

The final big fall is when the powers that be have officially lost, welcome 1929 x 10

Apologies here for going slightly off topic, but expect many product withdrawals from mortgage lenders this week

www.mortgagestrategy.co.uk news section keeps you up to date on latest mortgage industry news for those who are interested. I suspect a very bad week ahead for lenders with some more shutting up shop to sub prime business. More removing employed self cert as an option and LTV's further reduced.

[The link to topic however is that the blow up of Bear Sterns further impacts on the ability of lenders to originate mortgages, which hastens house price falls, that further impact on balance sheets and the vicious cycle of the negative feedback loop is complete]

3 more to go

jp morgan, if nothing is done to save BS then jpmorgan could be hit with a massive bill.

http://www.businesswire.com/portal/site/go...amp;newsLang=en



$2 a share - not much if you had them last year at over £140.

A good piece by Bob Moriaty at 321gold.com -


I wrote a piece 10 days ago suggesting caution on the part of my readers. Gold and silver are at bullish extremes; the dollar is at a bearish extreme. In any normal time, we would expect to see a correction, probably violent. I still believe we will have a correction shortly but we may no longer control anything. While the metals and the dollar are showing extremes of emotion, the shares of mining companies still seem to be very bullish based on my read of the XAU over gold.

My readers are smart enough to realize we are not in normal times. We are in a Domino Depression where we can expect two or three hedge funds to collapse every day, banks to go under on a regular basis. Northern Rock collapsed last fall, I for one, cannot understand how the rest of the banking system has not failed.

It's starting again; we are in uncharted waters where no one quite understands where we are; we've never been here before. Bear Sterns crashed on Friday last. On Monday March 17th, President Bush meets with the infamous Plunge Protection Team. The alternatives are everything from a Bank Holiday to a nuclear attack on Iran to Bush declaring a "National Emergency" and naming himself Fuhrer.

One of the very real alternatives is Weimar style inflation. That's what the government would like to do; it's a question of if the rest of the world will go along with it. All it would take for a total and immediate failure would be for China or Russia or Japan or Saudi Arabia to dump the dollar.

It's a time for caution. We SHOULD have a violent correction in gold and silver and the dollar based on emotion and government intervention but we could see $3,000 gold in a week or the start of a living nightmare brought to you by the Gang of Fools in Washington. No one knows.

I'm tempted to say the government's ability to deceive is far greater than I ever imagined and the stupidity of Americans equally unimagined. We may well coast into Armageddon at a nice measured rate or we could see a freeze-up next week. The time will come when there is a total freeze-up in the banking system and all the banks will close. I just don't know if it's next week or not.

It's a time to be cautious. We are not entering a recession; it's a full-blown Domino Depression. It's not a time to be in CDs or Real Estate or speculating in the stock market. You need to own real things of some real value. Our world is changing at an ever-increasing rate. Own some physical gold and pay attention to what is going on.

This is where my thoughts led me - it's kind of scary to have one's somewhat amateurish predictions confirmed by those in the know.

I'm not sure if anyone has posted this link up - http://www.bis.org/publ/qtrpdf/r_qa0712.pdf#page=108 - it shows the outstanding derivatives as of end Q3, 2007.

Adding the futures and options totals figures, that $618 TRILLION outstanding.

Now, a quick look at derivatives on wiki includes the following:

Derivatives are often subject to the following criticisms:

The use of derivatives can result in large losses due to the use of leverage. Derivatives allow investors to earn large returns from small movements in the underlying asset's price. However, investors could lose large amounts if the price of the underlying moves against them significantly. There have been several instances of massive losses in derivative markets, including:
The Nick Leeson affair in 1994.
The bankruptcy of Orange County, CA in 1994, the largest municipal bankruptcy in U.S. history. On December 6, 1994, Orange County declared Chapter 9 bankruptcy, from which it emerged in June 1995. The county lost about $1.6 billion through derivatives trading. Orange County was neither bankrupt nor insolvent at the time; however, because of the strategy the county employed it was unable to generate the cash flows needed to maintain services. Orange County is a good example of what happens when derivatives are used incorrectly and positions liquidated in an unplanned manner; had they not liquidated they would not have lost any money as their positions rebounded.
The bankruptcy of Long-Term Capital Management in 2000.
The loss of $6.4 billion in the failed fund Amaranth Advisors, which was long natural gas in September 2006 when the price plummeted.
The loss of $7.2 Billion by Société Générale in January 2008 through mis-use of forward contracts.
Derivatives (especially swaps) expose investors to counter-party risk. For example, suppose a person wanting a fixed interest rate loan for his business, but finding that banks only offer variable rates, swaps payments with another business who wants a variable rate, synthetically creating a fixed rate for the person. However if the second business goes bankrupt, it can't pay its variable rate and so the first business will lose its fixed rate and will be paying a variable rate again. If interest rates have increased, it is possible that the first business may be adversely affected, because it may not be prepared to pay the higher variable rate. This chain reaction effect worries certain economists[citation needed], who posit that since many derivative contracts are so new, the effect could lead to a large disaster. Different types of derivatives have different levels of risk for this effect. For example, standardized stock options by law require the party at risk to have a certain amount deposited with the exchange, showing that they can pay for any losses; Banks who help businesses swap variable for fixed rates on loans may do credit checks on both parties. However in private agreements between two companies, for example, there may not be benchmarks for performing due diligence and risk analysis. This has been a cause for concern among many economists[citation needed].
Derivatives pose unsuitably high amounts of risk for small or inexperienced investors. Because derivatives offer the possibility of large rewards, they offer an attraction even to individual investors. However, speculation in derivatives often assumes a great deal of risk, requiring commensurate experience and market knowledge, especially for the small investor, a reason why some financial planners advise against the use of these instruments. Derivatives are complex instruments devised as a form of insurance, to transfer risk among parties based on their willingness to assume additional risk, or hedge against it.
Derivatives typically have a large notional value. As such, there is the danger that their use could result in losses that the investor would be unable to compensate for. The possibility that this could lead to a chain reaction ensuing in an economic crisis, has been pointed out by legendary investor Warren Buffett in Berkshire Hathaway's annual report. Buffet stated that he regarded them as 'financial weapons of mass destruction'. The problem with derivatives is that they control an increasingly larger notional amount of assets and this may lead to distortions in the real capital and equities markets. Investors begin to look at the derivatives markets to make a decision to buy or sell securities and so what was originally meant to be a market to transfer risk now becomes a leading indicator. Many economists[citation needed] are worried that derivatives may cause an economic crisis at some point in the future.
Derivatives massively leverage the debt in an economy, making it ever more difficult for the underlying real economy to service its debt obligations and curtailing real economic activity, which can cause a recession or even depression. In the view of Marriner S. Eccles, U.S. Federal Reserve Chairman from November, 1934 to February, 1948, too high a level of debt was one of the primary causes of the 1920s-30s Great Depression.
Nevertheless, the use of derivatives has its benefits:

Derivatives facilitate the buying and selling of risk, and thus have a positive impact on the economic system[citation needed]. Although someone loses money while someone else gains money with a derivative, under normal circumstances, trading in derivatives should not adversely affect the economic system because it is not zero sum in utility.
Former Federal Reserve Board chairman Alan Greenspan commented in 2003 that he believed that the use of derivatives has softened the impact of the economic downturn at the beginning of the 21st century.

Now, it seems to me that our entire global ecomony is built on extremely unsound foundations, to say the least. Derivatives have infiltrated every single part of our society over the last 10 years - they are in our houses, our pensions and our stocks and shares.

I read in the Times yesterday (sorry, can't find the link) "RBS was the world's biggest underwriter of mortgage-backed securities last year ... [underwriting] $44.7 billion ... taking 12% share of the market. Bear Stearns was the eighteenth largest underwriter in 2007, underwriting $6.3 billion"[/color]

Bearing (no pun intended) in mind that Bear Stearns just went pop, and looking at RBS's exposure to this toxic nightmare, I think that we are going to see major UK bank failures in the very near future. They are all bankrupt anyway (and have been since Aug 07), but the guvmint are running out of options to save them. The small dripping leak is about to become an avalanche of water.

they have done a stupidly superb job of shoring the dam. I also agree that in the next few weeks we will see 2-3 UK banks going t1ts up.......brand named ones.

Man on street's confidence is at all time low imo.........won't take much now to tip the fragile balance & this time they won't believe what sh1te the government & BoE tells them....

What!?!? The table doesn't show $618 trillion outstanding, or anything like that.

~$94 trillion would be numerically correct, for all markets, but still utterly meaningless.

Have you added up the amounts outstanding for all markets as well as individual markets on each of the four reported dates?

BOE just injected another £5bn. Billion is the new million.

a lot of 'injections' of late, BoJ, FED, BoE.....h'mmm.....is this inflationary then ? where does that leave us in terms of money supply into the system.....oh, but hang on, it's just a temporary 'lend' function isn't it, so doesn't really count ?

edited - missed the ECB

here's how I got to $618 trillion:

please note that the table is in $billions, (and I'm assuming that a trillion is 1000 billion)

Futures - all markets $457,698.2 billions (457 trillion)

Options - all markets $223,462.3 billions (223 trillion)

How do you get to $94 trillion? (as if that's going to let us get off scot free, lol)

Yes you have made a very big difference thank-you, i was getting good old honest money anyway,but loaded up a lot quicker
from reading your posts from june 07 now 99% physical.
Am enjoying the greatest show on earth happing now.

Want some cgnao.

Can anyone who knows more about the banking system than I, venture a guess as to whether in the event of an emergency bank holiday being declared, Mutual building societies such as Nationwide would also be affected?

Bank Holiday- thats like a repayment holiday for Northern Rocks distressed borrowers isnt it?

Back to the topic....

FTAlphaville


http://ftalphaville.ft.com/blog/2008/03/17...ystem-meltdown/

"CDS Report: We are close to a financial system meltdown"

Where have I heard that before?

No this is not quite right.

the order will be

1. 9/11 false flag style attack
2. Marshall law
3. Bush as Fuhrer
4. RFID's for every one.
5. Rob the public and also Irabs whilst keeping the OPEC puppet alive

Those are the turnover figures, not the amounts outstanding. They would be relevant to someone charging a proportional commission for settlement.

$94t is still a huge number, but you have to realise that it still isn't really meaningful... for many reasons... for example...

* Many options will be "out of the money" - i.e. completely without value irrespective of the nominal amounts... and will never be vested.
* Many futures and options will cancel each other out - for example FX futures, a GBP->EUR future can cancel out a EUR->GBP future.
* One market position (bet) will, likely, be recorded multiple times - as banks do the equivalent of "laying off the bets" as practised by sports book makers.

The table is curious, however, since it makes no mention of credit default swaps... which are, in my opinion, the most significant and relevant derivative trade.

They need the money, and they need it fast to cover their exponentially growing derivative losses.

This is the mark of the derivative beast.

Soon they'll need trillions and the game will be over.

http://www.telegraph.co.uk/money/main.jhtm.../bcnbear917.xml
UK banks scramble to borrow as panic rules

ByPhilip Aldrick, Banking Editor
Last Updated: 2:01pm GMT 17/03/2008

British lenders rushed to borrow £23.6bn from the Bank of England this morning as panic gripped the sector in the wake of the Bear Stearns crisis.

To calm the markets following Bear’s liquidity problems, the Bank took the unscheduled move of putting up for auction £5bn of short-term money. The three-day money was nearly five times oversubscribed, the Bank said, with just 21pc of bidders receiving the funds.

Merv is underestimating this crisis perhaps?

He's just tight fisted.

yep - i agree

swervy merv will do as he is told, I think you will find.

UK IR's will be dropped imo.

FED will drop 75 points minimum also.

Lets see shall we.

edited:

death by inflation.

I really hope I am wrong on this.

Deflation, all this money is going into balance sheets- It cant be spent, its just like the legs on an oil rig. Theyve lost one in a storm and it needs replacing. The money is lost.

Seeing some of these figures I was wondering if a billion is a thousand million, what is a thousand trillion?

A bazillion

Oh. My girlfriend has one of those

I believe that in the US 10 to the power of 15 (12 zeros) is a quadrillion.
In the UK a quadrillion is 10 to the power of 24 (24 zeros)

Next step up is a quintillion, then sextillion.

I think it's a quadrillion

http://en.wikipedia.org/wiki/Quadrillion

Edit: Just beaten to it!

its called a "Thatswhatwasneededtofixthatdarnmessof2007to2012"

a thousand trillion is about a thousand bernankes, if that helps?

Thank you, yes you have made a difference.

Thank you for taking the abuse.

Thank you for returning.

I have nothing but the bare minimum in the banking system now.

The big four banks said they were giving a good example by using the discount window. That was August.

Can you see it?

http://www.bloomberg.com/apps/news?pid=206...&refer=home
Goldman, Morgan Stanley Use Fed's Wall Street Window

March 19 (Bloomberg) -- Goldman Sachs Group Inc. and Morgan Stanley, the two biggest U.S. securities firms, said they've used a lending facility created by the Federal Reserve to ease concerns that Wall Street faced a cash shortage.

``We have tested the window because we want to remove the stigma from the window,'' Morgan Stanley Chief Financial Officer Colm Kelleher said in an interview today, referring to the Fed lending program. ``It's meant to be there for normal business. It's not meant to be there as a last-recourse thing.''

Goldman spokesman Michael DuVally said his firm is also ``testing'' the Fed facility, started March 17, and will use it regularly ``if doing so makes sense from an economic and funding diversification point of view.'' Lehman Brothers Holdings Inc. CFO Erin Callan said yesterday the Fed window was ``very attractive'' and provided an alternative form of financing.

The Fed started the lending program for brokers, which is similar to the so-called discount window used by commercial banks, after a run on Bear Stearns Cos. last week pushed the fifth-largest securities firm to the brink of collapse. Wall Street banks were reluctant to turn to the Fed because of concern that it might make them appear financially weak, the Wall Street Journal reported today.

Under the new Primary Dealer Credit Facility, loans are available to securities firms on an overnight basis at the discount rate of 2.5 percent. Under the Fed's existing discount window for commercial banks, loans are available for as long as 90 days; the Fed extended the terms from 30 days in a March 16 decision and from overnight in August.

I want to test this discount window. Anyone got a discount brick lying around?

So what happens if they default on the loan ?

Do they get taken over by another bank ?

Thats as believable as single women deliberately getting pregnant to remove the stigma of single mothers.

it's been suggested that when a bunch of banks go to the discount window 'to remove the stigma', one of them is in trouble, the others are just smokescreen.

it's also been suggested that when a bank buys out another bank they are scooping their main counterparty up before anyone notices the jammy splat (see BoA / CFC, JPM / BSC)

"can you guess what it is yet..?"

Credit Neutron Bomb armed, fuse burning. Explosion imminent.

http://www.time.com/time/business/article/...2,00.html?imw=Y

Credit Default Swaps: The Next Crisis?
Monday, Mar. 17, 2008 By JANET MORRISSEY

As Bear Stearns careened toward its eventual fire sale to JPMorgan Chase last weekend, the cost of protecting its debt, through an instrument called a credit default swap, began to rise rapidly as investors feared that Bear would not be good for the money it promised on its bonds. Not familiar with credit default swaps? Well, we didn't know much about collateralized debt obligations (CDOs) either — until they began to undermine the economy. Credit default swaps, once an obscure financial instrument for banks and bondholders, could soon become the eye of the credit hurricane. Fun, huh?

The CDS market exploded over the past decade to more than $45 trillion in mid-2007, according to the International Swaps and Derivatives Association. This is roughly twice the size of the U.S. stock market (which is valued at about $22 trillion and falling) and far exceeds the $7.1 trillion mortgage market and $4.4 trillion U.S. treasuries market, notes Harvey Miller, senior partner at Weil, Gotshal & Manges. "It could be another — I hate to use the expression — nail in the coffin," said Miller, when referring to how this troubled CDS market could impact the country's credit crisis.

I understand that you just quoted someone else... but, really, this needs clarification.

I understand that a CDS is deemed to be a derivative.

Commentators have mentioned different totals for the derivatives marketh - none I am aware of put the figure at over $100 trillion - and many at about $45 trillion

In 2006, Merrill Lynch documents that CDS account for 16% of the ~$40 trillion derivatives market... but even if this proportion exploded (which seems unlikely - since I understand that there has been an expansion in all derivative trading) the figures just don't add up.

In any case, don't we need to establish the extent to which CDS contracts 'lay off' the risk. What proportion of the contracts 'cancel out' - i.e. where the writer of one CDS contract holds that is a liability is balanced against another which is an asset?

the problem is not the cancelling out, its the margins that are lost, ie the net value, which needs money to fund when the contract is due.

1% of a few trillion is a lot of money, somebody is going to have to find now that the music has stopped.

I think that if you read through CGNAO's posts you will see that the 'notional' can become real if one party defaults. That is to say, if A owes B a trillion and B owes A a trillion, it is resolved with little difference at the end of the trade. However, if A goes bust, B is down a trillion!!!

p-o-p

EDIT: Elaboration

For example:

http://www.bloomberg.com/apps/news?pid=206...&refer=home
Merrill Sues SCA'S XL Unit to Maintain CDO Insurance

By Jody Shenn

March 19 (Bloomberg) -- Merrill Lynch & Co. sued XL Capital Assurance Inc. to force the bond insurer to honor $3.1 billion of guarantees on collateralized debt obligations as the securities firm attempts to avoid more writedowns of mortgage-backed debt.

``We filed suit to make clear that XL Capital Assurance Inc. is required to meet its contractual obligations,'' Mark Herr, a spokesman for New York-based Merrill, said in an e-mailed statement today.

CDOs, which repackage mortgage bonds and other assets into new securities, were the biggest source of the more than $195 billion of mortgage-related writedowns and losses reported by the world's largest banks and securities firms since the beginning of last year. Merrill's $24.5 billion top the list. Losses may rise if default protection bought from companies such as XL, a unit of Security Capital Assurance Ltd., fails to pay off.