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House Price Crash Forum


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About zafonic

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  1. Here's where some of the bailout money went. http://www.wsj.com/articles/SB10001424052748703574604574499740849179448
  2. The passage below is the best explanation i've found to date. Last para in particular sums up the massive misdirection by Governments. A CDS is like insurance and sometimes you "win" even though you don't "profit" - you pay a premium for the CDS and payment of that premium may permit you to recover principal (such as bond principal) that otherwise is lost by reason of a bankruptcy. For example, you buy $1MM of Mega Corp 5 year bonds with a coupon of 5% in April, 2008, and also buy a CDS for the same amount and time period for a premium of $25,000. If there is no default, you earn your interest, minus the premium, and receive back your principal. In that example, the "profit" would be enjoyed by the seller of the CDS who pocketed the premium ($25K) and did not have to make good the principal ($1MM). You can also "profit" from a CDS if you bet right, even if you don't have an actual debt exposure, if the market turns in the diretion you bet and if you can then sell the CDS to a third party. In the prior example, say you did not actually own the bonds, you just bought a naked CDS, thinking that Mega Corp may be nearing a problem, and you are right and a year later the market for a 4 year Mega Corp $1MM CDS is $50K, then you sell the CDS to someone looking to cover an exposure for that time period and pocket the $25K profit. Or you buy up $1MM of Mega Corp. bonds at a discount (selling at a discount due to Mega Corp. credit problems) and tender the bonds and the CDS when they default. You profit based upon the discount, minus the $25K. Etc. One of your risks though is that the counterparty on the contract - let's call them AIG - can't pay what they promised, even if Mega Corp defaults. You then have a $25K bankruptcy claim against AIG, presumably worthless. In the real world of AIG, the government bail out money - i.e., the 99.9% of the AIG funds that were devoted to purposes other than the bonuses that are apparently the only topic of interest to the demagogues in Washington - went in most cases to counterparties, either to pay off "bad" bets by AIG on CDS and/or to cover collateral requirements under a CDS. For example, the CDS described above might have had a provision saying that the issuing counterparty did not need to post collateral for the CDS if its credit remained AAA, but if it dropped, say to A, then it would have to post 50% of the contract amount as collateral for its obligation. That situation was arising as to AIG and in some respects created a "run on the bank". Usually at least one side of the CDS had a real economic interest to cover - e.g., the bond buyer described above wanting or needing to hedge its credit bet by purchasing CDS. Sometimes on the other side of the contract was a simple speculator - e.g., AIG - but without the speculator, you would not have had much of a CDS market at all. Like all futures, options, etc types of contracts, some of the parties need to hedge an actual economic bet (e.g., commodity buy or sell) and other parties are just there to make money as a speculator, or in some cases by buying and selling both sides (arbitrage, i.e., taking advantage of pricing distortions in one or both markets to match off the risks and take the spread as profit). That is winding around a lot of different sorts of issues, but I hope is helpful in answering the question about who profits from a CDS. Think of it like fire insurance; the insurer, if properly run, makes the profit (most of the time) from the conract, but you profit - in reality suffer less of a loss - if you have to cash in on the insurance. Unlike insurance, however, the CDS market was (relatively) unregulated and so it was up to the counterparties to satisfy themselves that the other counterparties could pay up their side if called upon. Since in virtually all cases the players were big institutions that does not seem too much to ask. And why would the government feel the need to step in to save the bacon of supposedly sophisticated financial players - now that is the $64,000 question worth considering, as a taxpayer and as a matter of public policy. And the related question becomes why isn't Washington trying to explain the use of 99.9% of the AIG bailout money rather than trying to divert your attention to the 0.1% (pre tax) amount for the bonuses.
  3. A question for someone more intelligent than me. The big banks have developed “Bespoke Tranche Opportunity’s”, essentially CDO’s with a different name. You would have thought that banks would stay a million miles away from these products given that they nearly brought down the banking sector not so many years ago (and led to the insolvency and closure of some banks). Despite this, there is clearly an appetite to trade them again and this got me thinking who were the main beneficiaries of the last housing collapse. Much is spoken in the press about the hundreds of billions of pounds lost by banks and the hundreds of billions of pounds of Government money to bail them out. It is my understanding that most of these losses were on the synthetic credit default swaps on CDO’s, rather than the actual mortgages themselves. Now a swap is a zero-sum-game, i.e. for every loser there is a winner. So given that the banks lost tens of billions, there must have been an entity on the other side of the trade that profit to the tune of tens of billions. A quick google of “who profited from the housing crash” throws up very few names and those that it does mention are the handful of hedge funds featured in the book The Big Short. BUT, these hedge funds only made a few hundred million each or so (impressive, but that leaves hundreds of billions unaccounted for). My inference is that, there are a silent group of people who cleaned up to the tune of billions who (understandably) have kept quiet about the riches they manages to earn. Riches that essentially have come through the taxpayers bail-out money. Another thought is that if you add up the bonuses paid by the banks to staff over the last 15 years or so, this probably broadly equates to the amount of bail out money needed. Is this effectively where all the money has gone (i.e. over bonuses paid based on an over inflated valuation of the banks, which subsequently turned out to be erroneous so they need the “bonus” money back. Anyone who know more about this subject than me care to share thoughts on who the banks losses went to? Thanks in advance.
  4. Interesting what Lord Turner is saying, albeit dressed up in Latin. Seems the guys at Neon Nettle are already on to it. http://neonnettle.com/blogs/70-what-is-the-bradbury-pound-
  5. http://neonnettle.com/blogs/72-it-s-the-house-prices-stupid- Good article on Government manufactured HPI.
  6. Not come across this online magazine before, but clearly not afraid to tell it like it is! http://www.neonnettle.com/features/89-co-op-the-truth-about-economic-recovery
  7. I too have been thinking about inlfation protection. My thoughts are that if you have an instant savings account then when inflation kicks off, so too will the interest rate you are receiving so this is essentially a good hedge. Although current returns on instant savings are poor, they will improve when inflation rises. Just as the reurns on instant savings have fallen with the BoE cuts, they will just as quicly rise when teh BoE has to increase rates to control double digit inflation. Please can someone let me know if I am barking up the wrong tree as the last thing I want is my deposit for a house being eroded. I may even benefit from negative inflation in house prices yet postive inflation (and higher interest rates).
  8. I think you should mention Tony Blair's admission when giving a lecture to Yale students that the "prosperous" economy when he was in power was down to luck, not Gordon Brown's stewardship. http://www.dailymail.co.uk/news/article-11...Tony-Blair.html This went largely unoticed by the British media (surprise surprise). Maybe quote it and ask the panel if they agree whether he is the best person to get us out of this mess.
  9. Hi all Does anyone know where I can access the IG Index prices. I used to monitor the spreadfair projected spreads but sadly they are no more. Thanks
  10. Bear with me on this one! Sitting there last night, so cheesed off with the low rate of interest I am getting on my savings, I thought how can I possibly protest at the way GB and his cronies have treated me. I could write a letter to Gordon and make my views known, but I suspect it won't even reach him. So how can I and many others make a difference? Well I got thinking about Barrack Obama and the way he managed to raise his election campaign money. I think I'm right in thinking that the common people each pledged $50 to help support him and with this people power he managed to raise millions. I also think I'm correct in that there are 7 savers for every 1 borrower in this country. We are if you like, the silent majority and we are receiving an insulting rate of return on our saving. Contrast this with the 12% that the Government has demanded on its bailout money which it has leant to the banks. What would happen if simultaneously a large number of savers threatened to withdraw their money from the banks unless interest rates were raised to 5%? Think about the power of email and internet. It's not as if this is out of the question these days. The interest rate would have to rise to 5% to prevent a banking collapse. What I propose is an online petition putting the case for savers to the Government pointing out how the financially prudent are being punished. Also, the case for young people saving to get on the housing ladder and the many millions of pensioners who live off their savings. I THINK THERE ARE HUNDREDS OF THOUSANDS WHO WILL SIGN THIS. We could simply say that if rates continue to be lowered we will all withdraw our money on 1 February 2009 say? The petition could then be emailed to Brown, Merv King and the various media outlets. Think of it as being like the war protests, but with teeth as we actually have the power to do something at the end of it. All we need is someone who can set up a website where we can post the petition and allow people to insert their name and addresses in agreement. We can then simply forward round our friends etc. by email to generate awareness. Do any fellow HPC'ers have the skills to do this? We can stay within the confines of HPC.co.uk or we can go for something bigger and try and make a difference. If nothing else, it may help stop the one way traffic in favour of helping those who have over borrowed and over spent at the expense of those who have been prudent. What do people reckon?
  11. Thanks for the kind words guys. Decided I am definitely gonna look out for more opportunities to vent our view!
  12. thanks for the kind words guys. who knows? I may call a phone in again now i have popped my cherry!
  13. Hi folks, decided to ring up 5 live and do my bit for the cause as had my mates egging me on. Listen on attached link http://www.bbc.co.uk/iplayer/episode/b00dk87f/ It's about 35 mins 23 secs in so you will need to scroll forward (I am caller Clive from Formby). Wish I had been given more time, only just got started.
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