Not looking good is it

Let's have a whip round!!!!

http://www.bloomberg.com/apps/news?pid=206...&refer=home


Citigroup Punished in First Bond Sale Since Subprime Writedowns

By Fabio Alves

Nov. 15 (Bloomberg) -- Citigroup Inc., the largest U.S. bank by assets, was punished by investors in its first bond sale since disclosing almost $17 billion in credit-market losses.

Citigroup yesterday sold $4 billion of 10-year notes at the highest yield relative to benchmark interest rates in the bank's history, according to data compiled by Bloomberg. The 6.125 percent securities yield 190 basis points more than Treasuries of similar maturity, up from 118 basis points, or 1.18 percentage points, in a similar offering by New York-based Citigroup three months ago.

Also just announced on BBC that Barclays lost £1 billion in the month of October.

http://www.bloomberg.com/apps/news?pid=206...refer=exclusive

http://www.bloomberg.com/apps/news?pid=206...&refer=home

It's now feeding through to the re-insurance sector. Faster than I would have thought.

That's almost an entire Gherkin!

http://news.bbc.co.uk/1/hi/business/6330959.stm

http://www.bloomberg.com/apps/news?pid=206...&refer=home
''

"It seems pretty clear to me that, bank runs or not, the financial system is pretty close to melting down here," says Scott Frew, general partner at hedge fund Rockingham Capital Partners. "We're at such a tenuous moment that anybody who isn't scared to death about the possible denouements hasn't thought things through carefully enough."

100% Guaranteed.

All right. Let's start again.

This is the mark of the derivative beast.

The system is going down, 100% correct, guaranteed.

http://news.independent.co.uk/business/new...icle3179671.ece
Freddie Mac seeks emergency funding after posting $2bn loss
By Stephen Foley in New York
Published: 21 November 2007

Freddie Mac, the government-sponsored company tasked with propping up the US mortgage market, said it would be forced to seek emergency funding to shore up its balance sheet after plunging $2bn (£968m) into the red.

...

Without Freddie Mac to buy or guarantee new mortgages, other lenders could tighten their availability still further and exacerbate a housing market downturn, analysts fear.


http://www.bloomberg.com/apps/news?pid=206...refer=worldwide
Derivatives Grow at Fastest Pace in Nine Years to $516 Trillion

By Kabir Chibber

Nov. 22 (Bloomberg) -- The market for derivatives grew at the fastest pace in at least nine years to $516 trillion during the first half of 2007, the Bank for International Settlements said.

Derivatives melting down.

This will soon kill many large banks, financial institutions and ultimately major currencies worldwide.

This is real, ugly, unstoppable and 100% correct, guaranteed.

http://www.reuters.com/article/bondsNews/i...21?rpc=401&
NEW YORK (Reuters) - Derivative Fitch and Standard & Poor's on Wednesday cut their ratings on a combined $40 billion worth of securities linked to residential mortgages, reflecting the plunge in the value of the loans.

Derivative Fitch cut its ratings on $29.8 billion worth of collateralized debt obligations backed by residential mortgages, while Standard & Poor's cut $11 billion worth of the deals.

Ratings agencies have been slashing ratings of CDOs exposed to mortgages following broad ratings cuts of the mortgage-linked securities underlying the deals.

Today's cuts are across 74 different deals, and to date ratings on $67 billion worth of the CDOs from 158 deals have been cut, Derivative Fitch said.

S&P's rating cuts impact $5 billion worth of cash or hybrid deals, and $5.8 billion so-called synthetic deals, which comprise derivatives backed by mortgages.

edit: fix link

Gold and silver are the only antidotes, but there's not enough of them for everyone.

http://www.telegraph.co.uk/money/main.jhtm.../bcnasia121.xml
Credit "heart attack" engulfs China and Korea

By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 12:44am GMT 22/11/2007

The global credit crisis has hit Asia with a vengeance for the first time, triggering a massive flight to safety as investors across the region pull out of risky assets.

Yields on three-month deposits in China and Korea have plummeted to near 1pc in a spectacular fall over recent days, caused by panic withdrawls from money market funds and credit derivatives.

"This is a severe warning sign," said Hans Redeker, currency chief at BNP Paribas. "Asia ignored the credit crunch in August but now we're seeing the poison beginning to paralyse the whole global economy," he said.

The beast woke up and wants more.

The consequences will be unimaginable.

This is 100% correct, guaranteed.

Protect yourselves.

http://english.people.com.cn/90001/90776/90884/6306450.html
UBS AG, Europe's largest bank by assets, may have lost as much as $9 billion on collateralized debt obligations, according to CreditSights Inc.

The losses would be almost half the Zurich-based bank's $20 billion of top-rated CDOs, securities based on underlying assets. CreditSights, the independent research firm in New York, based its analysis on the bank marking down its holdings to prices indicated by benchmark indexes rather than methods used by UBS.

...

The bank's CDO losses are on portions called super senior because they were considered "virtually risk free" and the idea of writedowns was "unimaginable", the CreditSights report said. Ratings firms have cut 28 super senior portions of CDOs, eight of which dropped to high-risk, high-yield, or junk, JPMorgan Chase & Co analysts said in a report this month.

How long now till spectacular stock market falls?

Day by day the dots seem to be joining together for the mother of all financial melt downs.

The only shock so far is how the markets have continued to function at all.

Only a matter of time. There is nothing they can do to prevent the obliteration of the financial system.

Very pleased to see you back Cgnao, I always look for your posts on here.
Was wondering how long it would be - too much going on at the moment to stay away huh?

Global Derivatives Market Expands to $516 Trillion
By Kabir Chibber

Nov. 22 (Bloomberg) -- The market for derivatives grew at the fastest pace in at least nine years to $516 trillion in the first half of 2007, the Bank for International Settlements said.

Credit-default swaps, contracts designed to protect investors against default and used to speculate on credit quality, led the increase, expanding 49 percent to cover a notional $43 trillion of debt in the six months ended June 30, the BIS said in a report published late yesterday.

Derivatives of debt, currencies, commodities, stocks and interest rates rose 25 percent from the previous six months, the biggest jump since the Basel, Switzerland-based bank began compiling the data. Investors have been turning to credit derivatives as a way to speculate on a growing risk of defaults amid record U.S. mortgage foreclosures.

``The pace of increase in the credit segment outstripped the rises in other risk categories,'' Christian Upper, a BIS analyst in Basel, wrote in the report. Credit-default swaps are ``the dominant instrument,'' accounting for 88 percent of credit derivatives, the BIS said.

The money at risk through credit-default swaps increased 145 percent from last year to $721 billion, the report said. The amount at stake in the entire derivatives market is $11.1 trillion, according to the BIS, which was formed in 1930 to monitor financial markets and regulate banks.

link?

At your service ...

Bloomberg story - Global Derivatives Market Expands to $516 Trillion

Thanks.

Who is underwriting these credit default Swaps?
Can they cover the risk of MASS default?

The rush away from risk seems to be making the whole situation more precarious.

The current multi-billions write-downs are presumably the small fraction of loans that the cannot be securitised this way cos the risk is considered too high ergo too expensive

Credit Default Swaps = an unregulated* form of insurance = a wager or bet.

*After this crisis, the regulators will step in and they'll probably be subjected to regulation along the lines of insurance.

If we are talking plain vanilla CDS, then I think the banks are net protection sellers. So if they sell a £10 million 5Y protection on GM for example at 50bps, they will receive £50k year income. However, they they will have to make these positions to market, so if the spread has now widened to 60 bps, they will be underwater if they need to hedge the book to get a neutral notional (they would be paying 60bps and receiving 50bps). If they don't hedge and GM default, the bank will be liable for the £10 million minus the recovery rate (typically 40% so £6 million liability). So to summarise, it all depends on their net exposure, and also what default. There should be some info on the ISDA website that lists who is a net protection buyer and seller (in terms on banks/hedge funds etc)

I have an IQ if 148 and two science degrees.
And not one thing of what you have said above makes one bit of sense to me.
And I reckon that's a big part the problem.

I agree - my first class honours degree is no help whatsoever. Obfuscation seems to be the name of the game. No wonder most of us just turn over and watch the football instead. (Though come to think of it - horrors - maybe not)

that put a smile on my face.

Apologies - it's probably because I'm not explaining clearly - wikipedia has some good information

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

Another way of explaining it may be to imagine a bank (Bank A) is an insurer of cars. Assuming 10 people buy insurance protection for their Ford Mondeos at £1000 year, bank A will receive £10000 for the year. The insurance policy states that may payout per policy is £100000. However, Bank A may feel that it is too risky to have all the exposure (potentially £1000000). It could buy some insurance protection from Bank B, but a number of people have been crashing their Mondeos recently, so Bank A will have to pay £1500 per policy. It could choose to buy 10 of these policies (giving it a negative cashflow), but if everyone were to crash their Mondeo, Bank A would have no exposure. Or it could choose not to buy any policies from Bank B, leaving it with a positive cashflow, but also carrying the risk of Mondeo's crashing.

Not sure if this analogy makes it any clearer?

Hence the old adage:

"Bull5hit baffles brains"

Thanks for taking the trouble to find this for me Noel.
However I still glazed over after I hit the word, "Mondeo". Perhaps "Ferrari" would have kept my interest for longer (but I doubt it).

Ive spent a good part of my career doing computer programming. Some scientific, some financial/business. And by far the hardest was the business stuff. The good thing about science is you "cannae change the laws of physics". If only the same were true of bloody accountants.

I recall in the US I worked on a TEAM that implemented JCPenney's W2 (annual tax return) processing. And on the first day after the last annual run we would start re-engineering the entire system ready for next year's. One system, 50 states. Every state had different laws, rates, exemptions, claimbacks - and dont get me started if you lived in one state and worked in another. Each state had its own module that was one gigantic nested "IF" statement. Utterly bonkers.

I am glad my post caused some amusement (we aim to please) however I think its worth labouring my point that with such complexity and "sophistication" (and I do mean that in the derogatory sense) us mortals havent got a hope in hell of making any sense of it, much less defending our meagre nest-eggs from the professional vultures^H^H^H^H^H^H moneymen.

This is, I am convinced, how bubbles emerge.
When the graph is going up its "a great time to buy".
When the graph is going downs its becuase of "the failure of complex corss-collateralized CDOs orinigiating in the US market where unregulated credit derivative activity has resulted in a strong negative appreciation of domestic home financing" or something....

Before Joe average has even understood the sentence he discovers he's been royally dogboxed.

Baffled, yes.
Taken in by, no.

While I've never had my IQ formally tested, I like to think I'm as bright as an average person.

I've found that the learning curve in finance is steep - and it isn't helped by the fact that market participants intentionally choose the most obfuscated models when marketing to punters. When I started to read about this stuff, friends were dismissive - suggesting that it was beneath our peer group - "it is nothing more than sums and accountants are dull". Almost a year on and I think I've grasped the basics... and, when I talk about economics with my peer group... they now seem fascinated... it is the most interesting stuff I've read about this century. If you're anything like me, stick with it... this stuff really is interesting... and it isn't beyond anyone with a good (University-level) mathematical background and a good dollop of determination.

I think the problem with the hedge funds/bank is that the typical trader cannot lose by folowing aggressive strategies (assuming he has the authority to pursue this). If he takes a risk and it pays off, he makes a fortume. If it backfires he goes somewhere else. There is no incentive for him to take a conservative approach. Brian Hunter blew up at Deutsche and Amaranth

http://www.moneyweek.com/file/19829/brian-...-two-years.html

and he has gone on to set up a hedge fund

http://en.wikipedia.org/wiki/Brian_Hunter_%28trader%29

If anyone is interested in learning the subject, or has insomnia, this was the first book I read on the subject and I found it invaluable

http://www.amazon.co.uk/Credit-Derivatives...1539&sr=8-1

Hi Asteve

Not being funny mate but I think your University-level mathematical background appears to have given you an interesting expectation of what consitutes an "average person".

An "average person" to me goes to the pub, watches the footy and drives a bus. And he certainly hasn't got advanced calculus in his reportoire. On the average, that is.

You said it yourself "just over a year on and [youve] grasped the basics... with a good (University-level) mathematical background and a good dollop of determination"

I think this makes my point beautifully. Average folk are putting their life savings into mechanisms they have little hope of understanding let alone controlling.

I go to the pub (hate football though) and bus-driving is a skill I've not been given opportunity to master.
Don't confuse intelligence with education.



Ahhh, but - you see - what is tricky is to build an understanding of the whole system from first principles. What average folk should be able to do is trust the accounts of publicly listed companies and the assurances of professional financial advisers. Unfortunately, "soft touch" legislation has lead to an increase in charlatans throughout the industry. I should be able to book a meeting with a financial advisor and say "I earn X; I spend Y; I want to own Z; I want to retire in W - What should I do with my money?" This doesn't work, however, for a number of reasons. Firstly tax legislation is so devastatingly difficult to analyse that it doesn't happen at all more often than not. Furthermore, a vast number of financial advisers are offering corrupt sales pitches for products on which they earn commission. We should be able to trust the FSA will regulate to protect the consumer - in practice... we can't.

If it is any consolation, I have a physics degree, a further degree in maths, an IQ of 168 (measured when I was 17, admittedly) and I'm an actuary. I have problems with some of this stuff.

Understanding most things in life doesn't require intelligence, it just requires patience and application. As far as finance is concerned, a major part of the problem is to cut through the jargon.

Much of the jargon is created deliberately to confuse the uninitiated, in my humble opinion.

Im even brighter even than you, and I dont understand it either

I know some really clever people... one wrote their own programming language at university for the 'fun' of it (mad) but I have to say, their a danger to themselves out on the street, always seem to walk into the road without looking for things like buses or cars. Miracle they're still alive.

Anyway. I think it's all down to geek speak. Go to a motorcycle club and you'll see stuff about graphs and power ratios and zzr's v rgv's and all sorts of stuff, and unless you’re a motorbike geek, you'll have no idea what they're talking about. Same thing with finance.. if you like it, you leant the geek speak, you'll understand it. If you don't, it may as well be Latin for all the understanding you’ll have

I worked in investment banking for 7 years, I remember walking into a branch of HSBC to look at some tracker funds and the woman in the bank had absolutely no idea what she was talking about. Was like going in a car show room and the salesman saying.. err..this one's blue. Never a good thing to tell someone who's selling the product they've got no idea what they're saying.. Asking them when the funds go ex-div or how often the NAV's calculated and so on. It was just one big ball of blank. Funny really if it wasn't so sad.

Te audire no possum. Musa sapientum fixa est in aure

It's actually very simple.

Due to the low rates and easy availability of credit that central banks allowed over more than one decade, esoteric, leveraged financial instruments mushroomed on the balance sheets of many large banks around the planet which are now effectively insolvent.

Central banks around the world are desperate to save the system, but they can only delay the unavoidable by increasing the quantity of currency in circulation to bail the banks out. By immutable law of economics this is inflationary (more money chasing same goods = rising prices).

The amounts of new liquidity they have to inject to placate the derivative monster are now growing exponentially. This has triggered a runaway, self reinforcing spiral of rising prices, which will end with a total loss of public confidence in all currencies.

This is 100% correct, guaranteed.

EDIT: add link and article

http://www.forbes.com/markets/feeds/afx/20...afx4368899.html
ECB says it will hike liquidity amid 'tensions in euro money market'

FRANKFURT (Thomson Financial) - The European Central Bank (ECB) said tensions in the money markets have re-emerged and therefore it will increase the liquidity it provides to banks at least until 'after the end of' 2007.

In an announcement communicated directly to the financial markets, the ECB said it has 'noted re-emerging tensions in the euro money market.'

'To counter the re-emerging risk of volatility, the ECB intends to reinforce in the upcoming main refinancing operation, as well as in the following ones for as long as it is needed and at least until after the end of the year, its policy of allocating more liquidity than the benchmark amount in main refinancing operations,' it said.

I think that basically, the bad debts have mounted to such an extent over such a long time, the whole financial system would collapse if allowed to unwind at its natural speed, ie over a matter of weeks.

The unwinding has clearly begun, triggered by defaults n the US.

As CGNAO says, a natural speed unwind would bust the system in an instant.

So what they are doing, is dribbling out bits of the losses, shunting other bits in hidden sidings for delivery to the bad news area later on.

Unfortunately, the defaults are continuing apace, and havent really started here and in Australasia yet.

They are hoping they can control the speed of the unwinding so that the shocks can be absorbed. They (the central banks and governments) will try everything in their power to contain the speed of the damage casued by the losses.

They caused it all, and we will pay the price

If you are right (and I am sure you are knowing the infinity/zero problem presented) then I assume you are taking a risk posting here.

Thank you very much Cgnao. is all I will say.

For everyone else - have a quick way to make a million pounds using our insane banking system.

Deposit £1000 at bank A - have it paid into bank B as wages. Have Bank C pay it in dribs and drabs back into bank A. Now you have £3,000 to borrow against. Do so, and keep this scam going round and round until you have a million quid.

Then, once it can't possibly get any bigger, dump your stake into gold or it's equivalent in material wealth and sod off overseas while the whole thing crashes behind you.

ofc it helps if you have three banks with different interest rates, lets call them chinese bank, yank bank and japanese bank. That way you can reverse this and get the amount of money that the interest payment for £1,000 is capable of funding and use currency swapping to do the work for you and not even have to find the interest. In this way £1,000 can become £100,000 more or less instantly. And then, once deposited..become £1,000,000 and so forth.

ofc..one daychinese bank might decide to go into competition with japanese bank and yank bank......

The derivative beast is global and insatiable.

Protect yourselves.

http://business.timesonline.co.uk/tol/busi...icle2926165.ece
From The Times
November 23, 2007
Sub-prime crisis takes £5.3bn toll on Japan’s banks
Leo Lewis

Profits in the Japanese banking sector have taken a 1.2 trillion yen (£5.3 billion) hit from the US sub-prime mortgage crisis and the country’s central bank has said that worse turmoil may be on the horizon.

The first estimate of the damage wrought by sub-prime was prepared by Japan’s Financial Services Agency and follows grim first-half earnings figures from Japan’s largest bank, Mitsubishi UFJ Financial Group.

The big global banks, by their very nature, diversify their investment and risk around the globe.

CDos are a big issue, but China and South East Asia are doing well for a start.

Annual profit forecasts aren't far off which will provide a clearer picture.

cgnao, is now a good time to take out a huge loan?

The big global banks, by their very nature, ruin everyones economy all at the same time.

China will walk out of this the best by far, but don't expect them to be honouring your investments when the west's governments have defaulted on theirs.

Yes but my point was that HSBC, RBS and the like gain a big share of their profits in that part of the world. Agree?

It is certainly worth considering to borrow GBP and buy gold, but only if your total leverage is fairly low, you understand what the implications of being on margin are and you know very well what you are doing.

If not, you run the risk of going bankrupt due to volatility regardless of being right and long gold in a the greatest gold bull market in history.

A reasonable plan.

As I said, only if you know what you are doing, because it carries a very high risk.

Otherwise, just buy gold, no margin, hold on to it, wait, see and eventually laugh.

sounds a bit like what BTL landlords did in their bull run- we think we know how THATS going to end

Given that all banks face losses many, many times greater than their total capital, then, no, not really. The most that will happen is that the producive arm will jettison/be bought out etc a local arm and they will fold in those places where they are not profitable any longer.

If tesco's in Doncaster do badly, they don't keep it open just because the one in London is doing well.

The professional BTL landlords made a fortune and bailed out early by selling to late amateur investors which are now being slaughtered.