No matter what happens, Goldman Sachs and JP Morgan will not go under. Not while the Federal Reserve are in control of the money supply.

here's some more light reading


enjoy your ovaltine

Actually i think we all use the same billion and trillion nowadays, ie a trillion is the old british billion (a million million).

"This time what the leverage translates to is that a lot more CDSs have been sold on any particular company than the actual amount of the underlying debt"

How do they know this?

"Spreads on a Bear CDS jumped from 246 basis points over Treasury to 792 basis points over Treasury"

You don't pay spread relative to treasury when you buy/sell protection

"But no one is really sure just how many times the default insurance would have been multiplied prior to the Bear "run", and as such how many sellers of the CDSs would have themselves been bankrupted by their leveraged exposures"

?

"If Bear had gone down, the spreads on all other CDSs would have blown out substantially, prompting an overwhelming need for a reduction in risky positions"

Was this not mostly priced in already?

Noel, thanks for your help in your other posts, most valuable for me.

I am concerned in your replies above, as, you appear to be someone who deals in these things, but you question the overview from outsiders.

Is it that the questions themselves are silly, bearing in mind the way the CDSs work, or is it that these are questions you cannot answer using your current knowledge framework.

By this I mean like a person who thinks a bank has their cash tucked away in the vaults for withdrawal, not realising the cash is not there but being invested elsewhere. The user thinks one thing and can be forgiven for thinking it, yet the overview, and its "snags" is hidden.

Bloo Loo,

Firstly a disclaimer,

While I have been working in credit derivatives for around four years now I don't profess to know 100% of every facet of every area of the market (for example - I know little of the MBS and ABX market) and I am more than happy to be corrected. I may also be guilty of skim reading articles and if I see something that I don't agree with being overly harsh on the rest of the article.

That said, it seems that a lot of people are jumping on this bandwagon and making statement that aren't entirely accurate, either due to a lack of understanding or to make the situation sound a lot more alarmist. I think this article falls into this category.

The original headline before the Ministry of Truth changed it read:

Money-Market Rates Rise as Central Bank Injections Backfire

http://www.bloomberg.com/apps/news?pid=206...&refer=bond
Money-Market Rates Rise; Central Bank Injections Fail (Update1)

By Gavin Finch

March 26 (Bloomberg) -- The cost of borrowing in dollars and euros rose as central bank efforts to break the squeeze in short-term lending misfired.

cgnao's avatar is a nuclear mushroom. Personally I think what we're witnessing is more akin to the disaster at Pompeii.

Vesuvius spewed millions of tons of toxic crap miles into the atmosphere and many among the local population stood by amused. Not only did no-one knew that Vesuvius was a volcano, no-one knew what danger a volcano posed. Unusually for that part of Italy there was no breeze blowing that fateful day to disperse the cloud. Shortly, ash and pumice stone fell on Pompeii, again with many locals looking on still amused, but some showing increased degrees of concern. Eventually under its own weight, the massive cloud that hung over the Vesuvius came crashing back down, down the slopes with pyroclastic flow blasting through the city, vaporising everything in its path, leaving the tragic but haunting ruins we have today.

To me the derivatives the banks have foolishly traded are analgous to the Vesuvius's toxic cloud, with the sheeple under it about to suffer the consequences of their gullible folly.

Yeah I think your right. Noone uses the old british Billion any more.

It goes:

Million, 1,000,000
Billion, 1,000,000,000
Quadrillion, 1,000,000,000,000
Quintillion, 1,000,000,000,000,000
Sextillion, 1,000,000,000,000,000,000
Septillion, 1,000,000,000,000,000,000,000


These numbers re refered to as the "short scale" the british AKA "long scale".

You might like this:

http://en.wikipedia.org/wiki/Peta_%28prefix%29

Its not exactly backfiring is it?

The rates were higher and would be higher still if the base rate was higher, IMHO.
So lowering the base rate has helped, although it may have done damage in other ways.

Lowering rates is not supposed to inspire confidence is it? It is supposed to increase the banks margin and help the "system".

I'm not a banker but is this not "nearly 0.75 percentage points above risk-free money" (assuming that risk-free money is at 5.25%(?))

Agreed. Not a chance, never in a million years.

Why? is 5.25% + 0.75% not equal to almost 5.995?

Well that was kinda my point, WaP

But cgnao was suggesting that "investors" demand 15 basis points below the BoE rate. I've no idea if this is accurate.

Interesting, so borrowing from the BoE is not deemed to be risk free.

Is the 15bps arbitrary?

Borrowing from the BoE is not supposed to be investment... The BoE is only supposed to provide liquidity... I'd have said.

Conversely, one can argue a strong case that LIBOR is the "risk free rate" - because (it has been argued) you can't get less risk than lending between banks.

I know investors who demand much less than 5.1% - so, it rather depends upon the investment and the investor.

Not too sure about this, but I have always believed the 'risk free return' was based on the yield provided by 10 year goverment bonds or Uk Gilts, as they are backed by the government/boe/taxpayer and should never default.

One other definition of risk free return that I have come across in the US is the yield on their TIPS or Treasury Inflation Protected Securites, which should offer no risk of default but also protect from the risk of rising inflation.

Even a 5% UK Gilt Yield cannot be truly considered risk-free if inflation rises up to 10%.

The derivative beast is now eating Citibank alive.

Suggest heading for the bunker as detonation is imminent.

http://www.nypost.com/seven/03272008/busin...cted_103801.htm
CITIGROUP'S Q1 LOSS LARGER THAN PREDICTED

March 27, 2008 -- Citigroup Inc., the biggest US bank by assets, will post a quarterly loss four times as large as Oppenheimer & Co. analyst Meredith Whitney previously estimated, she said in a revised forecast.

Citigroup fell 5.9 percent in New York trading to close at $22.05 after Whitney predicted the bank will lose $1.15 a share in the first quarter. That compares with her earlier loss estimate of 28 cents, Whitney wrote in an investor note yesterday.

Whitney correctly predicted two months in advance that Citigroup Inc. would reduce its dividend to preserve capital.

Citigroup may write down $13.1 billion of assets including leveraged loans and collateralized debt obligations in the first quarter, according to her latest estimate. US bank earnings overall will tumble 84 percent in the quarter, she said.

"This will not be our last reduction in 2008," Whitney wrote in the note. "We anticipate further downside to both estimates and stock prices" because banks will be under pressure to mark down assets to reflect falling market indexes.

If the risk free return is less than true inflation its a dead cert loser.

The fiddled inflation figs even make Indexed NS&I bonds worse than useless as a way to preserve wealth.

Stock up with real stuff esp gold and silver is the only answer IMO.

early morning 'scare' bump.

The BoE have previously reported that much of the 'shadow' financial system is somewhat opaque to them as their stats do not capture it accurately.

Last month's BoE bankstats return indicates a definitional change for derivatives to capture more of what is going on and to bring their stats up to international standards. This has led to a rather large increase in reported derivative positions. Go to 'Article: Extended coverage of credit derivatives data.' on the following bankstats release.

http://www.bankofengland.co.uk/statistics/...kstats_full.pdf

"This definitional change accounts for much of the
increase in gross positions shown in Table F1.1 between
Q3 2007 and Q4 2007. Credit derivatives now account
for 9.1% of total gross asset positions at end-December
2007, compared with 0.5% at end-September 2007."

The BoE have previously reported that much of the 'shadow' financial system is somewhat opaque to them as their stats do not capture it accurately.

Idiots.

So they are not even bothering to measure the real sum of parts of the economy they have foisted on the population through interest rate manipulation.

Their economic models are worth nothing if those models don't measure what is going on in the economy.

What's the betting that this is just the beginning of the adjustments re derivatives?

Not sure what inflation has to do with whether an asset is risk free?

Wow.

Agreed.

Risk is the Risk of default. Not the risk it will be worth fu*k all.
Tres bonds should never default, but they may end up being worth sweet FA!

Yeah. It certainly is a big amount.

Can't wait for the other big banks to write down huge losses. Great fun.

Yeah. Warren Buffett was spot on when he described deriviatives as "financial weapons of mass destruction".
I wonder if the hedge funds etc. will short Citigroup in the same manner that they shorted Northern Rock all the way down the toilet? I guess the smeg-heads had it coming.

You are so wrong it hurts. All bonds are hugely affected by 1) credit risk 2) interest rate risk 3) inflation risk 4) currency risk

You really have no idea what you are talking about and should be banned from managing anyone's money including your own.

http://www.reuters.com/article/bondsNews/i...451962020080214

NEW YORK, Feb 14 (Reuters) - U.S. government debt prices ended mostly lower on Thursday, led by long-dated issues, as traders turned their focus to inflation risks from more interest rate cuts signaled by the Federal Reserve.

Cgnao,

What do you make of these lease rates?

http://www.kitco.com/charts/g_leaserates.html



http://www.kitco.com/lease.chart.html

F

these things became very popular all of a sudden- like MBS- we know what happened to a large proportion of them!

CG,
to be precise, the default risk on a Sovereign Bond is to all intents and purposes zero..
The price may fluctuate, but a buyer locks in a return at purchase.
The price fluctuates to reflect the risk of inflation percieved, but if the buyer holds to maturity, there is essentially no default risk. Of course there is a risk that the return on investment (and the investment itself!) will be utterly wiped out in terms of REAL purchasing power by inflation ensuing during the period of ownership.
My 2cents.

EDIT: keep your eyes on the differnce BTW long and short dated Sovreign bonds..

You are just another moron.

http://www.ncseonline.org/NLE/CRSreports/04Oct/RL32637.pdf



Ah, and to be precise you can't spell.

Central banks dumping gold like it's going out of fashion.

They desperately want to hold it back, but they can't.

Looks fine to me.



So the 18% club of private Gold owners can hold back the force of the CBs, hope they have enough cash to buy all that massive dumping of Gold.

Got to say Cgnao, your style has changed dramatically in the last couple of days, you are responding directly to posts. People are giving you the needle enough for you to insult them... i get the feeling your recent posts have been closer to home for you and that the 'game is really afoot' in the markets etc. Do you reckon this slow motion collapse we've all been watching is about to speed up in a big way? Just an observation.

I think I can PERCEIVE an error, CTT.

Maybe you can point it out as I don`t have my laptop reading glasses to hand.

CG, I have no way to know if you are a genius or a mad man.. frankly most of it goes over my head.

Why would the central banks want to try so hard to prevent a gold/commodities bubble? surely bubbles occur in all asset classes but ultimately people will always trade in fiat currencies since our whole economic system is geared up to trade that way.

Do you have any links that indicate gold sell-offs by central banks to back up the idea that they may have another motive?

Maybe he's not a great typist.

The cost of ignoring my warnings if I am correct is enormous.
The cost of following my advice if I am wrong is small.
You decide.



Straight from the horse's mouth:

http://www.federalreserve.gov/boarddocs/te...98/19980724.htm




Because controlling them is much more difficult as they are ultimately linked to the real world and therefore not part of the global rigged casino where they can just print more money and settle contracts in paper cash when the going gets tough.



Are you sure?

http://www.spiegel.de/international/busine...,543588,00.html
Germans Fear Meltdown of Financial System

Germany and other industrialized nations are desperately trying to brace themselves against the threat of a collapse of the global financial system. The crisis has now taken its toll on the German economy, where the weak dollar is putting jobs in jeopardy and the credit crunch is paralyzing many businesses.

He edited his post, that's fine.

But who edited my quote of his post?

Oh come on Cgnao all edits are time and date stamped.

Here`s my Edit.

If you know your history you'll understand that the US dollar was backed by gold up until 1971. The US constitution insists that only gold and silver can be legal tender.



When gold heads higher, it gets unwanted media attention. The public then start asking a lot of questions about why it is so high.. ie - misuse of dollar pumping, inflation etc.

The central banks have a vested interest in keeping gold low.

Maybe so, but they ultimately hold the power.

The power of banking is held in the ignorance of it's victims.

Completely OT but this forum is showing GMT, my computer and BBC News 24 is now showing BST, I always thought the clocks went forward at 0200 GMT.

Edit: The forum clock now shows BST, the bloody thing must have been slow.

Congress have the authority to remove the Federal Reserve if there was an overwhelming public outcry to do so.