Tuesday, January 15, 2008

A recovery rate of 3%? In your dreams bosos!

Insight: The fire threatens credit insurance

The notional value of CDS contracts globally is $45,000bn. That represents real underlying credits of about $5,000bn. The maximum rate of corporate defaults was about 3 per cent in the 1990s recession. However, corporate speculative grade bond defaults run as high as 10 per cent. A weighted default ratio of 5 per cent (3 per cent for investment grade and 10 per cent for sub-investment grade) would mean that credits with a par value of $250bn would default. Assuming an asset recovery ratio of 30 per cent, the hit would be $175bn.

45 trillion dollars!

Posted by lvmreader @ 07:17 PM (797 views)
Please complete the required fields.

3 thoughts on “A recovery rate of 3%? In your dreams bosos!

  • Predicted by LVMReader over 4 months ago.

    Please complete the required fields.

  • stillthinking says:

    The article states/reckons that ‘we reckon global liquidity is set to shrink by 8-10 per cent’. That means deflation as well.
    I am obviously missing something here.

    Please complete the required fields.

  • @StillThinking,

    We are talking about the end of the Western Financial System as we know it. CDOs backed by ABS may get 30% back when they fail, but CDOs backed by Credit Card debt are worthless. Nada. Rien. Zip.

    $250bn is a hopeful “Alice in Wonderland” figure. Try $1 trillion for starters and then assume leverage of 10x and a 3% recovery.

    That is more likely.

    Please complete the required fields.

Add a comment

  • Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
  • Please note that any viewpoints published here as comments are user´s views and not the views of HousePriceCrash.co.uk.
  • Please adhere to the Guidelines

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>