ZED!

Um do you think the prices for Credit Default Swaps might be going down because the possibility of ever getting paid on those swaps is going down as the overall economy circles the bowl?

I mean what good is a credit default swap from AIG if the govt decides it is not paying anymore? or what of one from one of the likely bankrupt banks? What is that worth?

Insurance is only worth something if the financial institution backing it up is financially sound.

DIGG is OPEN Pups so please take the time to support the Lake and DIGG this Post!

Rube Goldberg would have a field day with this Treasury contraption. The assessment yardstick is as false as they could make it.

As you point out, the number of banks whose performance needs to be measured is small. Take their temperature and vital signs. Don’t read me the air temperature of the hospital floor on which they’re staying.

The “assessment yardstick” seems inadvertently to reveal the goal of this bail-out – to restore confidence, the perception that all is right with the banking world. That’s a broker or market maker’s horizon, which is as distant as the sweat on the guy’s face next to him on the trading floor. It’s only utility is to enable the next trade.

That’s a “members only” standard that does no one any real good. It purposely fails to measure what Mr. Obama may think he can’t fix: the underlying financial health of an industry that engorged itself on trades and fees and is bankrupting the rest of America. It’s a measure that also seems designed to avoid addressing a pressing need: the fundamental re-regulation of a corrupt industry.

AIG knew it was insuring CDS with no money to back these claims up. This was part of the fun for the insiders…to see how high they could get the number (last I read the total derivatives market was $600,000,000,000,000!).

Masaccio,
Thanks for laying this out for us. I am not satisfied with the metrics that Treasury and the Fed are using. Sounds to me like the COP folks are smarter than Geithner, Summers & Bernanke.

The COP folks seem like the types who want to open the hood and check specific things out, whereas Geithner & Bernanke just want you to take the car for a spin and see how it feels– never mind what’s under the hood. More power to the COP on the beat!

Bob in HI

FinSOB is a good moniker. It seems appropriate that the Congressional Oversight Panel is the COP.

No government regulation = no insurance reserves. Who could have foreseen this all happening? /s

The COP folks seem like the types who want to open the hood and check specific things out,

They do, as Warren makes clear. Unfortunately, as she makes clear also, Geithner & Co. have locked themselves inside the vehicle, and refuse to pop the hood release.

So much depends on the details. What is the volume of CDSs? Are all of them being tracked? What companies are the CDSs being written on? What kind of CDSs are these? Who are the counterparties?

You see what CDSs are currently being written may simply reflect safer bets on more secure companies. That would reduce the spreads even as the rest of the market went to hell.

As for the Libor, yawn. It went up as part of the initial panic and has come down somewhat since. It still remains, as you note, above historical levels. However, as we have all seen, declines in interest rates have had no relation to or effect on increased lending.

Maybe FinSOB could try relating economic activity to baseball scores or frequency of summer barbecues. It would seem to be about as relevant.

They just left the “e” out of FinSOB….

am I the only one who thinks it’s too late now that our GDP for the foreseeable future has been given away and lent out?
What difference does it make if, in a year, we get some regulation on these crazy banks when they’ve gotten all our $$$?
Does anyone else see that this is classic Shock Doctrine and we’re paying off the dictator’s debts really, really fast before the country goes belly up?
Or am I just totally off base. Please tell me I’m off base…please.
Gotta go, I’ll return later for any responses…

treasury is surely looking a much more than ONE metric-

I suspect that they will muddle through this thing.

Checks, balances and meaningful oversight – isn’t this the way it is supposed to work?
And, I think over time, although not as efficiently as we might have hoped, it will work.

classic Shock Doctrine
This is as if they followed Naomi Klein’s blueprint word for word! This IS Shock Doctrine brought home… “American” Style! We are in for years and years of financial problems while these rich asshole laugh all they way to the BANK… Literally with help from the Government to get all our money and our Grand Kids money!! Re-read her book and get pissed off Like I am at the assholes!!

Linky for (last I read the total derivatives market was $600,000,000,000,000!). $600 quadrillion, not a number seen yet.
Good point…where are these toxic assests going….they get unwound when the terms dictate.

Toxic assests (more appropriate name is liabilities) are causing the credit crunch that is putting the economy in reverse with massive damage to global and regional economies. TARP does not shed light on what state the toxic assest are in just a strategy to take them off of the banksters balance sheets.

Linky for (last I read the total derivatives market was $600,000,000,000,000!). $600 quadrillion, not a number seen yet.
Good point…where are these toxic assests going….they get unwound when the terms dictate.

Toxic assests (more appropriate name is liabilities) are causing the credit crunch that is putting the economy in reverse with massive damage to global and regional economies. TARP does not shed light on what state the toxic assest are in just a strategy to take them off of the banksters balance sheets.

Blue America upstairs with guest Francine Busby

DUGG!!!!

I don’t. Yves Smith at Naked Capitalism had thi link to a speech by Janet Yellen of the San Francisco Fed about a Minsky meltdown in which she largely glossed over the Fed’s role in producing the current crisis and totally ignored history of the last 30 years and the construction of the paper economy.

http://www.frbsf.org/news/speeches/2009/0416.html

When I read something like this, I realize that the people at the top still don’t get. And not getting it, I doubt that they will be able to fix it.

$600,000,000,000,000 is 600 trillion. One more set of ‘000′ would make it $600 QUADRILLION.

Here’s one linky:

http://www.independent.co.uk/n…..62657.html

“This toxic debt is the elephant in the room and solving the problem is the missing link to getting the world economy moving again. Until we know what proportion of the estimated $600trn [£400trn] of derivative contracts is toxic, then credit markets will remain in a state of chronic paralysis.”

Credit Default Swaps are not just a bad metric for evaluating a bank’s solvency. CDS are financial poison in themselves, and along with naked short selling, are predatory weapons used by vulture capitalists to ravage corporations into bankruptcy.

The Wall Street Journal recently published an article by George Soros explaining how “CDS are toxic instruments whose use ought to be strictly regulated”:

George Soros on CDS Regulation

Don’t worry. We are going to have to raise taxes, primarily on the richest part of the population. Eventually, we’ll get back in balance. Anyway, this is one of the things we can’t change we shouldn’t let it get to us.

From my perspective, we need to understand what happened and what is being done so we can push in the right direction.

Take a look at the letter from Treasury attached to the Warren Report, and you will see that these are their metrics. The GAO uses the TED spread, the difference between the interest rate on three month Treasury Bills and three month LIBOR.

That $600tn figure includes all kinds of derivatives, including interest rate swaps which are a very large part, along with all kinds of other stuff. Not all of it is toxic.

Thanks!

Not getting it seems to be key to staying in power. Otherwise, by admitting a problem you volunteer (or become responsible) to fix it. Kind of like musical chairs: admit the real problems and you stop the music, leaving only yourself without a chair.

That all these well-informed top players, all part of the problem, fail to “get it” in tandem, suggests the metaphor of “concurrent” (not monopoly) pricing as practiced by once-regulated airlines, by Rockefeller’s oil companies and Vanderbilt’s railways.

Any so called investments on margin no matter what they are called will bring the same results..pain and suffering for the populace.

Are we to believe the published results to the stres tests was to pick a few statistics that prove the case the the banks are ok?

That’s Constructive Fraud.

And she conflates cause and effect.

Specifically:

“This cult of risky behavior was not limited to financial institutions. U.S. households enthusiastically leveraged themselves to the hilt.”

No lady. They were marketed to. Marketing is effective. Without the actions by the lenders, these people would not have been stripped of their equity. The lenders were more interested in fees than ensuring the borrowers had the ability to repay the loans.

A breach of the lenders primary fiduciary responsibility.

It is not that hese people don’t get it. It’s that the don’t want to get it, becuase that requires assigning blame, and pointing fingers at themselves.

Thank you. I know we have to keep up with the pressure on Obama, but sometimes it’s very discouraging. and I DO get pretty scared of what we’re doing to this beautiful earth.

What about the metrics themselves? Neither of them relies on data related to the stability of the actual banks. Instead, they rely on the perception of the banks by investors. And not just any investors, the tiny cabal of Wall Streeters who trade in credit default swaps and overnight interest rate swaps (OIS) in secret markets, known only to the insiders.

Oh, excuse me… it appears that revolting stench of burn hair is coming from the spontaneous ignition of my hair when I read this post.

Arggghhhhhhhhhhhhhhhhhhh!!