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Credit Default Swaps

  • I understand them fully. Scary huh.

    Votes: 2 20.0%
  • I have a vague idea what they're talking about

    Votes: 3 30.0%
  • Can we see some pics of boobs and cars now plz?

    Votes: 6 60.0%

  • Total voters
    10
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BenzWorld Elitist
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Discussion Starter #1
http://www.nytimes.com/2008/02/17/business/17swap.html

Musical Chairs? "One of the challenges facing participants in the credit default swap market is that the market value amount of the contracts outstanding far exceeds the $5.7 trillion of the corporate bonds whose defaults the swaps were created to protect against."
 

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I understand them and they give me a headache. As the number of people who can no longer run to the bank to pay off consumer debt with equity lines increases, and the resultant delinquencies pile up this house of cards [pun intended] is going to falter.

We can thank Greenspan for this little instrument that he developed along with the CBOs, extreme leveraging of hedge funds and derivatives, and SubPrime portfolio three card monty. Stack that with the "let the free market manage itself" attitude that reduced federal oversight of the Financial Sector and we have what we have.
 

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http://www.nytimes.com/2008/02/17/business/17swap.html

Musical Chairs? "One of the challenges facing participants in the credit default swap market is that the market value amount of the contracts outstanding far exceeds the $5.7 trillion of the corporate bonds whose defaults the swaps were created to protect against."
I know just enough to want to see boobs and cars!

FWIW: There is no "house of cards" to come down, IMO. These swaps are essentially insurance-type vehicles and they are struggling in a few cases due the the double-whammy of an over-heated housing market trying to regain equilibrium and the sub-prime loan losses. No one could have predicted that yet I think it is working itself out nicely. We only have 1% or 2% of mortgage loans in default, and that is a very manageable, albeit regrettable, situation. Just as the housing market excesses have to be worked out, so to do the credit market excesses that accompanied it. But this is FAR from the end of the world as we know it.
 

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BenzWorld Elitist
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Discussion Starter #4
No one could have predicted that yet I think it is working itself out nicely.
And FWIW, I don't see how anyone could have failed to predict it. The numbers were there for all to see, and even a relatively-unsophisticated investor such as myself begain to take defensive action in 2005.

Meanwhile, the credit default swap overhang has tsunami-like potential and in theory anyway could have happened irrespective of the subprime crisis. As near as I can tell (and I too fall closer to the boob-car point on the comprehension continuum) the players cheated. The same thing has happened with shorting stocks. People are playing with phantoms in the market. If all the chits were called in, you would have total collapse--to the degree that the Fed couldn't begin to fix it. That's scary.
 

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BenzWorld Elitist
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Discussion Starter #5
Here's kinda what I mean about the "naked" short selling. Jeez even more innuendo. Investing is such fun.

But, the matter is that the trades cannot actually be settled, since the bets were against phantom partners. And in this way, otherwise-solvent companies can be attacked and brought down. E-Trade I think?

Goldman Sachs to pay $2M fine - U.S. business - MSNBC.com
 

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And FWIW, I don't see how anyone could have failed to predict it. The numbers were there for all to see, and even a relatively-unsophisticated investor such as myself begain to take defensive action in 2005.

Meanwhile, the credit default swap overhang has tsunami-like potential and in theory anyway could have happened irrespective of the subprime crisis. As near as I can tell (and I too fall closer to the boob-car point on the comprehension continuum) the players cheated. The same thing has happened with shorting stocks. People are playing with phantoms in the market. If all the chits were called in, you would have total collapse--to the degree that the Fed couldn't begin to fix it. That's scary.
Nothing personal, but you might want to stick to grammar lessons. You are an expert there. But as far as the financial markets and investing go, you seem more likely to lose your shirt than to get a new one. I am definitely no expert, but I know enough to spot a "player" who is in the wrong casino--if you know what I mean?
 

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BenzWorld Elitist
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Discussion Starter #7
Nothing personal, but you might want to stick to grammar lessons. You are an expert there. But as far as the financial markets and investing go, you seem more likely to lose your shirt than to get a new one. I am definitely no expert, but I know enough to spot a "player" who is in the wrong casino--if you know what I mean?
Thanks for the aspersions sweetheart, but I have made a killing in the past year while most of the 'experts' took a dive. So I'm kinda feeling my oats actually.
 

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BenzWorld Elitist
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Discussion Starter #9
Jayhawk, once again you level a personal insult, completely out of the blue (at someone who has lately gone out of his way to get along with you, I might add) and get a small piece of extremely gentle, defensive sarcasm in return, and now claim to have been "afraid" of it? Really? Are you actually unable to perceive offense unless you are on the receiving end? Because I can do much better, if it'll help.
 

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Jayhawk, once again you level a personal insult, completely out of the blue (at someone who has lately gone out of his way to get along with you, I might add) and get a small piece of extremely gentle, defensive sarcasm in return, and now claim to have been "afraid" of it? Really? Are you actually unable to perceive offense unless you are on the receiving end? Because I can do much better, if it'll help.
What the hell are you talking about--exactly? I have leveled NO insult at you, personal or otherwise!!?? You can't possibly be that insecure, can you???:confused::confused::confused:
 

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BenzWorld Elitist
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Discussion Starter #11
What the hell are you talking about--exactly? I have leveled NO insult at you, personal or otherwise!!?? You can't possibly be that insecure, can you???
LOL.... I do believe that's yet another one?
 

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Administratoris Emeritus
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You can both kiss my conditional subjunctive ass. Hope that helps.
 

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I know just enough to want to see boobs and cars!

FWIW: There is no "house of cards" to come down, IMO. These swaps are essentially insurance-type vehicles and they are struggling in a few cases due the the double-whammy of an over-heated housing market trying to regain equilibrium and the sub-prime loan losses. No one could have predicted that yet I think it is working itself out nicely. We only have 1% or 2% of mortgage loans in default, and that is a very manageable, albeit regrettable, situation. Just as the housing market excesses have to be worked out, so to do the credit market excesses that accompanied it. But this is FAR from the end of the world as we know it.
All during 06 and until December of 07 that is the same thing you said about the housing and credit market.

You really need to take a look at the numbers and more importantly the ratios.

As for blowing off the 1-2% mortgage loans in default, those number become cumulative, it is not a static number [that same darned 1% being late again for a whole year]. Simply put, if 1% are in default in January that is X number of defaults. That repeats monthly so by the end of the year you have 12X. In the case of the Financial, Credit and Mortgage industries which work off of 1/100 of a percent increments 1% is large. 2% is huge. These folks project their business plans on "up to .25%" failure rate.

It is why they have insurance when things go over throttle. And there is not enough equity in the insurance pool to compensate for the current levels of foreclosures in the Mortgage market and defaults in the Credit Card/Consumer market.

The word you need to understand is "leveraged". When the system is working it is a great way to bundle. When the system fails, it is nothing but a house of cards.
 

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BenzWorld Elitist
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Discussion Starter #18
You have an overactive imagination my friend...
What's funny is that when I catch you in the act, you still can't help yourself.

Meanwhile, back on topic: if the broader market resumes its major bull, and the 'glitch' this past year was nothing more than a figment of the liberal media's imagination, and equity values skyrocket across the board, the dollar regains its footing, gold returns to $600 an ounce, the public debt gets paid off, etc etc, then I'll indeed be left behind a bit and you'll be proven right. So far, though, all bloviating aside, doesn't look so good for you does it?
 

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All during 06 and until December of 07 that is the same thing you said about the housing and credit market. ....
And you have been screaming the same Chicken Little BS (Bear Shit) for at least that long w/ absolutely nothing to show for it! Why don't you get a life!!
 

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What's funny is that when I catch you in the act, you still can't help yourself.

Meanwhile, back on topic: if the broader market resumes its major bull, and the 'glitch' this past year was nothing more than a figment of the liberal media's imagination, and equity values skyrocket across the board, the dollar regains its footing, gold returns to $600 an ounce, the public debt gets paid off, etc etc, then I'll indeed be left behind a bit and you'll be proven right. So far, though, all bloviating aside, doesn't look so good for you does it?
What on earth are you talking about?
 
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