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An Attempt At A New Monoline Thread


Captain Coma
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If the DOW ended up almost 300 points today because of this news - which I think is the reason - then I will bet it won't stay there for long.

There is not enough money in America to bail out the monolines if the defaults accellerate, which they will, and asking the gov or the FED to step in to cover the debts (claimed against defaulting commercial bonds written by the banks themselves) amounts to an NR-style bailout for the entire US banking system.

The fact that Wall Street was so overjoyed and relieved simply to hear that a meeting was taking place merely points to the dawning realisation of this desperate and perhaps incurable situation.

Once they do their sums and realise that shareholders are going to be crucified to the last cent (apparently Soros has basically said "save the banks and hang the shareholders" - see CGNAO's thread), I think the markets will puke and it'll go the other way.

These ups and downs are getting wilder and wilder and faster and faster by the day now. If the DOW was a person you'd be looking at somebody crying and laughing and talking gibberish - meaning an imminent psychotic break and the strait-jacket for the patient's own protection.

Poor kitty: they just strapped the dead cat to a rocket and lit the blue touch paper.

The market is now Amy Winehouse.

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http://www.ft.com/cms/s/0/93387d20-c9fd-11...0077b07658.html

The Short View: Monolines and markets

By John Authers, Investment Editor

Published: January 23 2008 22:05 | Last updated: January 23 2008 22:05

This may be of related interest (not had time to read it & sorry if posted)

I may be cynical but it appears to be some additional (very expensive) wallpaper for the front room. Its just a shame that they haven't noticed the six inch wide (and slowly expanding) cracks in the outside walls, the leaking roof (hey its dry today) and the rotten window frames.

Captain Coma is right, no one can finance the defaults as they appear. Furthermore while the defaults may be due to Fraud (heck everyone on this site knows they are) the Mono's cannot sue the banks who created the crap and said honest guv it really is AAA without revealing the game. All it does is extend the game a little longer.

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Just thinking out loud:

None of this is real money in the sense that so long as no party wishes to withdraw cash, all that will occur is transfer of ownership of funds via a computer entry. Just like all banks, solvency/insolvency only becomes an issue when everyone wants to withdraw cash at the same time. If the reserves/balances that allow these computer transfers to be made, (and the AAA ratings), can be sustained by, say, government guarantee, there is nothing to prevent the continuation of computer entries shuffling electronic funds between parties. However, what if one party wants to stop playing pass-the-parcel and play another game instead - like, Let's-dive-for-the-gold-safety-net - then the whole lot would come crashing down. It's like a circular trapeze act: so long as the artiste who let's go of one trapeze is caught by the artiste on the next trapeze, etc etc, the act goes on. But if one trapeze artiste falls, the whole act grinds to a halt and all those who are in mid-air at the time will come crashing down. Thus, a decision by one party to stop playing the game and dive for the safety net will trigger a total collapse.

What do you think?

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Just thinking out loud:

None of this is real money in the sense that so long as no party wishes to withdraw cash, all that will occur is transfer of ownership of funds via a computer entry. Just like all banks, solvency/insolvency only becomes an issue when everyone wants to withdraw cash at the same time. If the reserves/balances that allow these computer transfers to be made, (and the AAA ratings), can be sustained by, say, government guarantee, there is nothing to prevent the continuation of computer entries shuffling electronic funds between parties. However, what if one party wants to stop playing pass-the-parcel and play another game instead - like, Let's-dive-for-the-gold-safety-net - then the whole lot would come crashing down. It's like a circular trapeze act: so long as the artiste who let's go of one trapeze is caught by the artiste on the next trapeze, etc etc, the act goes on. But if one trapeze artiste falls, the whole act grinds to a halt and all those who are in mid-air at the time will come crashing down. Thus, a decision by one party to stop playing the game and dive for the safety net will trigger a total collapse.

What do you think?

My business is mostly numbers on screens, and I make and sell real things.

Thos numbers on screens are just as real as real pound coins in your hand.

If they werent, there would be no crisis

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My business is mostly numbers on screens, and I make and sell real things.

Thos numbers on screens are just as real as real pound coins in your hand.

If they werent, there would be no crisis

:lol:

I think I will bail out the bankers.

What do you say?

Edited by Injin
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My business is mostly numbers on screens, and I make and sell real things.

Thos numbers on screens are just as real as real pound coins in your hand.

If they werent, there would be no crisis

Yes, I appreciate that. But as with Northern Rock, the problems arose when people lost confidence and everyone tried to withdraw cash at the same time, yet were re-assured and stopped trying to withdraw cash following a government guarantee of funds. Moreover withdrawn funds either found their way back into NR or another bank. However, suppose the government guarantee hadn't worked and people became fearful of leaving their money in ANY bank and decided instead to buy gold, then they whole system would have collapsed.

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Morning everyone

Markets are rebounding today as predicted in this thread. Does this latest bail out not seem like history repeating itself. Did the stock markets not rally when the sub prime bail out's were first announced?

Once the markets see this bail out was as ineffectual as the sub prime bail out it is down down down. Sticking my neck on the line i would say March is going to be a very significant month.

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Yes, I appreciate that. But as with Northern Rock, the problems arose when people lost confidence and everyone tried to withdraw cash at the same time, yet were re-assured and stopped trying to withdraw cash following a government guarantee of funds. Moreover withdrawn funds either found their way back into NR or another bank. However, suppose the government guarantee hadn't worked and people became fearful of leaving their money in ANY bank and decided instead to buy gold, then they whole system would have collapsed.

Thats right, but the withdrawels could just as well have been numbers on screens.

As for the monolines, they could only exist in the long term if the assets they were insuring were increasing in value. So, they are not banks and cannot be bailed, but they do need sufficient funds to meet their insurance obligation, which as banks own them, will come from the banks. Its sort of a run on the banks from the other side if you like.

Its lucky its not run like lloyds, or a few names would be stuffed.

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I asked a few friends of mine who work for IB's in the City what the crack was with all this Monoline malarky.

ALL of them have stated that their understanding is that some kind of bail-out is being worked on.

As others have already stated on this thread, this seems to be the "least worst" option, so makes 100% sense.

As such, is this now a non-issue?.... I think not.

I feel a monumental breakdown of the financial system as we know it is off the cards. But this of course DOES spell the end of lax lending practices and high volumes of liquidity in the markets.

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I asked a few friends of mine who work for IB's in the City what the crack was with all this Monoline malarky.

ALL of them have stated that their understanding is that some kind of bail-out is being worked on.

As others have already stated on this thread, this seems to be the "least worst" option, so makes 100% sense.

As such, is this now a non-issue?.... I think not.

I feel a monumental breakdown of the financial system as we know it is off the cards. But this of course DOES spell the end of lax lending practices and high volumes of liquidity in the markets.

A bail out of this nature doesnt reduce banks losses one iota, it just makes it worse, and in fact reduces available capital as a whole for lending even further.

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A bail out of this nature doesnt reduce banks losses one iota, it just makes it worse, and in fact reduces available capital as a whole for lending even further.

Apologies if I am being more than usually dense, but if the US government does the bail-out, isn't that slightly different from other banks attempting a bail-out? The government just guarantees/underwrites/securitises the debt and everything goes on as normal, except better regulated - a bit like Northern Rock. Okay, so the US Government ends up guaranteeing half the world's debt, in theory, but does it matter in practice? I can see that it would be inflationary, that it could cause the dollar to dive for a while, but what else? I mean, I was expecting all hell to break loose after our government said it would guarantee £25 billion of NR debt. But apart from a couple of days of turmoil in the FTSE, nothing much else seems to have happened. I guess what I am saying is, is there a possibility that a government backed bail-out of the monolines could actually work?

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Any one who followed my advice to go long Ambac and MBIA on Monday would have cleaned up. I suggest taking profits now before the market realises how difficult a bailout will be.

http://www.housepricecrash.co.uk/forum/ind...=66023&st=0

If you are liquid and willing to take a longer term view, I would estimate that Ambac is worth $30-40, representing a 200-300% pick-up on today's prices*.

Best,

Monty

* It goes without saying that this is not investment advice and you should DYOR.

Edited by uncle_monty
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Apologies if I am being more than usually dense, but if the US government does the bail-out, isn't that slightly different from other banks attempting a bail-out? The government just guarantees/underwrites/securitises the debt and everything goes on as normal, except better regulated - a bit like Northern Rock. Okay, so the US Government ends up guaranteeing half the world's debt, in theory, but does it matter in practice? I can see that it would be inflationary, that it could cause the dollar to dive for a while, but what else? I mean, I was expecting all hell to break loose after our government said it would guarantee £25 billion of NR debt. But apart from a couple of days of turmoil in the FTSE, nothing much else seems to have happened. I guess what I am saying is, is there a possibility that a government backed bail-out of the monolines could actually work?

Govt bailout would mean a massive increase in govt deficit spending levels (ie borrowing). Firstly where does the money come from? Taxation is more likely to cause a revolution than it is to meet any such deficit. Govts dont print money, they borrow it by selling bonds on which they have to pay interest to the bearer.

To attract the kind of money to sevice the interest on a debt of that size will mean sucking a large amount of liquidity out of the credit markets meaning not only will there be a lot less credit available but also you'll have to bid much higher interest rates to get hold of any.

And no, govts can't just print it up and pay it off at the flick of a pen. Thats what Zimbabwe tried to do when no-one would lend the govt any more money. A hyperinflationary collapse is WORSE than a depression.

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Apologies if I am being more than usually dense, but if the US government does the bail-out, isn't that slightly different from other banks attempting a bail-out? The government just guarantees/underwrites/securitises the debt and everything goes on as normal, except better regulated - a bit like Northern Rock. Okay, so the US Government ends up guaranteeing half the world's debt, in theory, but does it matter in practice? I can see that it would be inflationary, that it could cause the dollar to dive for a while, but what else? I mean, I was expecting all hell to break loose after our government said it would guarantee £25 billion of NR debt. But apart from a couple of days of turmoil in the FTSE, nothing much else seems to have happened. I guess what I am saying is, is there a possibility that a government backed bail-out of the monolines could actually work?

Totally agree; If the GOvt does the bailout, the $ will go to hell, gold will go to the moon. If the banks try it, god help them.

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Any one who followed my advice to go long Ambac and MBIA on Monday would have cleaned up. I suggest taking profits now before the market realises how difficult a bailout will be.

http://www.housepricecrash.co.uk/forum/ind...=66023&st=0

If you are liquid and willing to take a longer term view, I would estimate that Ambac is worth $30-40, representing a 200-300% pick-up on today's prices*.

Best,

Monty

* It goes without saying that this is not investment advice and you should DYOR.

Monty you terrible *****! I would suggest that the monolines are not worth anything. Default rates exceed new income. Loss of AAA rating means no-one is willing or able to use them for about 3/4 of their existing business. They are zombies.

Authorities are trying to work out best way to unwind it. There will be no tangible bailout, just some soothing whispers. There is no future for these monolines without being dissolved first. There may be some hairy day trades to be done but rather yours than mine old bean!

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Govt bailout would mean a massive increase in govt deficit spending levels (ie borrowing). Firstly where does the money come from? Taxation is more likely to cause a revolution than it is to meet any such deficit. Govts dont print money, they borrow it by selling bonds on which they have to pay interest to the bearer.

To attract the kind of money to sevice the interest on a debt of that size will mean sucking a large amount of liquidity out of the credit markets meaning not only will there be a lot less credit available but also you'll have to bid much higher interest rates to get hold of any.

And no, govts can't just print it up and pay it off at the flick of a pen. Thats what Zimbabwe tried to do when no-one would lend the govt any more money. A hyperinflationary collapse is WORSE than a depression.

Exactly so! And isn't that what CGNAO has been going on and on and on about...... That governments will actually TRY this kind of bail-out with the consequent inflation/hyper-inflation, rather than face the music and dish out the required deflationary medicine?

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Apologies if I am being more than usually dense, but if the US government does the bail-out, isn't that slightly different from other banks attempting a bail-out? The government just guarantees/underwrites/securitises the debt and everything goes on as normal, except better regulated - a bit like Northern Rock. Okay, so the US Government ends up guaranteeing half the world's debt, in theory, but does it matter in practice? I can see that it would be inflationary, that it could cause the dollar to dive for a while, but what else? I mean, I was expecting all hell to break loose after our government said it would guarantee £25 billion of NR debt. But apart from a couple of days of turmoil in the FTSE, nothing much else seems to have happened. I guess what I am saying is, is there a possibility that a government backed bail-out of the monolines could actually work?

I think the US Treasury will probably step in to guarantee the policies. The question is, how inflationary will that be? It depends on how many dollars need to be printed in order to meet the liabilities. I originally hoped that many of the liabilities might not materialise, meaning the US Treasury would simply be lending its clout instead of actual money, but having read this * it's become clear to me that that's being optimistic: if the liabilities were unlikely to materialise, the original risk pricing would have been correct, and the insurers would not have these capital adequacy problems. So a solution based on the printing press is likely to be highly inflationary.

So we're still in the same place we were before, facing either a deflationary bust or the possibility of a hyperinflationary collapse, depending on what the policy makers choose to do :ph34r:

* excellent article by the way, I'm sorry I don't recollect who originally shared it.

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Any one who followed my advice to go long Ambac and MBIA on Monday would have cleaned up. I suggest taking profits now before the market realises how difficult a bailout will be.

I am inclined to agree with Uncle Monty. Of course neither the banks, nor the Fed, nor the US gov can afford to bail out the monolines - for very long. They might be able to hold back the floodwaters a little while - a matter of a few weeks or months, depending on the speed of developments - but as defaults increase, the need for new injections of capital will grow at an even faster rate. As usual, such actions only serve to shore up worse problems in the future.

I think the DOW could well stay up until close tomorrow, but I would not be surprised if Monday looks bad (even worse) again after the market has time to sober up over the weekend. We shall see.

Incidentally, does anybody know if anything dramatic or unusual has happened over the last 24 hours to the yields on 3- and 6-month US Treasury Bills? Rumours were that the smart money had already left the market and gone into cash, so a drop in the yields might give some evidence for this, and an indication of how imminent a large (share) market drop might be.

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Exactly so! And isn't that what CGNAO has been going on and on and on about...... That governments will actually TRY this kind of bail-out with the consequent inflation/hyper-inflation, rather than face the music and dish out the required deflationary medicine?

I would hope gov's would realise the difference. One is terrible, the other is even worse. There are no advantages to opting for hyperinflation over a depression for any party involved.

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I would hope gov's would realise the difference. One is terrible, the other is even worse. There are no advantages to opting for hyperinflation over a depression for any party involved.

There is one, single advantage: the incumbent government stays in power for a little longer. Any government that purues a deflationary policy, however much it is needed, is the right thing to do, becomes so unpopular to the electorate that is generally financially ignorant, that they couldn't survive. MPs would sooner save their own seats (and skins) than opt for the correct deflationary course. There's little or no principle in modern politics and politicians as far as I can tell. They don't even have the good grace to resign promptly when caught with their hands in the till - they wait, like Peter Hain, until they are pushed.

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