Financial Crisis

[12DrinkMore]

To answer the question about how a bank could be liable, just imagine yourself in the position of a fund manager. If you invest the cash you receive from customers into straight AAA government bonds, the return you will get is ridiculous, your clients are angry with you and you get fired.

Money gets lent on the guarantee of AAA bonds. It used to be 95% or even more with daily/intraday monitoring.

So as fund manager, you will use your bonds as a guarantee to lend money from the bank to increase your leverage and to make your customers happy.

The additional bonds you acquired again increase your "buying power"... in extreme cases, it was possible to buy bonds while covering only 3 or 4% of their face value, the rest of the money being lend from the bank.

I doubt if any of the pension schemes are allowed to ramp up their gamble in the market by 30* the net asset value of the fund. Might apply to the hedge fund wide boys. But maybe you can point me in the direction of a link to verify this? I am pretty sure that there will be rules against leveraging up of pension scheme assets.

The risk is immense, on the figures you give, even a 5% write down will blast them all out of the water.

In this scheme, if a country like Greece goes bust on its AAA bonds, not only the funds go bankrupt, but also the banks that lent money to the funds.

That's where governments have to intervene to segregate and limit risks on the banking side.

Again, are we talking hedge funds or pension funds?

And is that not exactly what banks do, create money and lend it out? So why not lend out vast chunks of it to Sovereigns? What is there to stop them? Surely the governments, now able to sell vast quantities of debt to the banks, are not going to reign in this?

yes... and no. For the banks, it is much more profitable and less risky to push through those "government bonds" to their clients, i.e. the taxpayers, by earning commissions in the process.

I.e. the banks write you a letter or call you to tell you about the investment opportunity in government bonds, deemed "super safe", because a government always pays its debts, right?

Well, not so.

The last decades have seen governments working more and more AGAINST their own citizens, not only in the tax/financial area.

All goes more or less well as long as the economy is expanding, because the additional money created covers the interest of the debt, but when the economy stops growing, the debt's interest has to be paid anyway, not to mention the principal.

Can't argue with that.

The "money as debt" but "no money to pay the debt interest" is interesting. I believe it only applies to net importers. If a country is making net exports, then the money earned from the exports can be used to pay off internal debts, leaving the net importers even worse off than might otherwise be expected.

Although this is widening the scope of this discussion a little, I think it is another major part of the debt ridden countries' problems not fully taken into consideration in the "austerity" medicine prescribed to them. Even if the economy is expanding, as long as the balance of trade is consistently negative sooner or later there surely will a financial crisis.

Even if you can print USD's....

[manarak]

Again, are we talking hedge funds or pension funds?

The delimitation between the two has been blurring a bit, especially with he emergence of, for example, re-securization of mortgages and other stuff.

The pension funds may be legally required not to leverage, but they may have bought stuff that was thought to be safe (Asset backed securities, anyone?) but at the end is not, or products that contain inherent (hidden) leverage.

The "money as debt" but "no money to pay the debt interest" is interesting. I believe it only applies to net importers. If a country is making net exports, then the money earned from the exports can be used to pay off internal debts, leaving the net importers even worse off than might otherwise be expected.

Although this is widening the scope of this discussion a little, I think it is another major part of the debt ridden countries' problems not fully taken into consideration in the "austerity" medicine prescribed to them. Even if the economy is expanding, as long as the balance of trade is consistently negative sooner or later there surely will a financial crisis.

Even if you can print USD's....

It doesn't widen the scope at all!

This topic is at the center of all the problems, all the other things are epiphenomena compared to that central issue.

We are back at the trade flows I mentioned earlier.

Why do you think Germany has the capacity to pay for everyone and why do you think Germany has no debt problem?

Because Germany has been in the world top 3 net exporting economies in the last 30 years, plus it made trillions exporting inside the EU.

What China is to the World, Germany is to the EU.

I urge countries to tax distribution/import companies on their turnover instead on their profits.

[manarak]

And there is another thing I want to say:

The Western countries' wealth in the 20th century was based on the exploitation of other (third world) territories/colonies.

This is what the Western welfare state was based on.

Today, the left wing still hasn't realized that, and much less the 'basis' of blue and white collar workers that make the bulk of socialist voters.

This is more a European problem, because the US have less welfare and much less overhead costs on individuals.

There is no logical reason why the lowest working classes in Europe should automatically have enough money to rent a private apartment, or that they should be able to sleep alone in one room.

When it will be possible for an individual to decently live in Paris, Milan or Berlin with 500 of TODAY'S EURO WORTH per month, at this moment, Europe will have solved its problems.

Edited January 19, 2012 by manarak

[Naam]

Manarak & 12,

discussing what and why does neither pay for dog food nor does it buy a lot of beer. why not concentrate on making a little pocket money?

GFW Cap XS0237509293 (T1 of Münchener Hypo). not sure yet whether it was mispricing, but it does not look like. if no mispricing then the food for my dogs is secured for decades.

yesterday when i was already sleeping this happened:

http://www.comdirect.de/inf/anleihen/detail/uebersicht.html?SEARCH_REDIRECT=true&REDIRECT_TYPE=ISIN&REFERER=search.general&SEARCH_VALUE=XS0237509293&ID_NOTATION=16756510

Edited January 20, 2012 by Naam

[midas]

Deutsche Analyst Sounded Alarm When Asked to Alter Numbers

" At a time when mortgage-backed securities were imploding and customers were fleeing the market, a junior analyst at Deutsche Bank AG protested when he was asked to alter the numbers in a spreadsheet to make a Deutsche security look less risky to ratings agencies, according to a person with knowledge of the matter."

http://www.propublica.org/article/deutsche-analyst-sounded-alarm-when-asked-to-alter-numbers

[Naam]

bad news for the Armageddon/ Apocalypse/ EU-break-up lovers:

Portugal successfully raised the maximum amount it planned at an auction of its treasury bills on Wednesday, which was the first sale since Standard & Poor's downgraded the country's rating last week. The debt agency IGCP raised EUR 2.5 billion from the sale of Portugal's 3-,6- and 11-month paper. The agency planned to raise between EUR 2 and EUR 2.5 billion from the auction. The country sold EUR 1.25 billion of the December 2012 bill at an average yield of 4.986 percent, down from 5.902 percent in the previous sale on April 6 last year. The bid-to-cover ratio for the 11-month paper was 2.1 compared with 2.6 in the previous auction. This was the first auction with nearly a year maturity since the country raised EUR 455 million in the April 6 auction at higher cost and it sought a bailout from the European Union the same day. The 6-month T-bill was placed on a yield of 4.740 percent, down from 5.250 percent in a sale on November 16. The country sold EUR 754 million of the security. Demand was 3 time the offer, down from 4.1 in the previous sale. The 3-month debt was placed at a yield of 4.346 percent, unchanged from the previous auction on January 4. The agency raised EUR 496 million from the sale. The bid-to-cover ratio rose to 4.1 from 2.4.

[midas]

bad news for the Armageddon/ Apocalypse/ EU-break-up lovers:

Portugal successfully raised the maximum amount it planned at an auction of its treasury bills on Wednesday, which was the first sale since Standard & Poor's downgraded the country's rating last week. The debt agency IGCP raised EUR 2.5 billion from the sale of Portugal's 3-,6- and 11-month paper. The agency planned to raise between EUR 2 and EUR 2.5 billion from the auction. The country sold EUR 1.25 billion of the December 2012 bill at an average yield of 4.986 percent, down from 5.902 percent in the previous sale on April 6 last year. The bid-to-cover ratio for the 11-month paper was 2.1 compared with 2.6 in the previous auction. This was the first auction with nearly a year maturity since the country raised EUR 455 million in the April 6 auction at higher cost and it sought a bailout from the European Union the same day. The 6-month T-bill was placed on a yield of 4.740 percent, down from 5.250 percent in a sale on November 16. The country sold EUR 754 million of the security. Demand was 3 time the offer, down from 4.1 in the previous sale. The 3-month debt was placed at a yield of 4.346 percent, unchanged from the previous auction on January 4. The agency raised EUR 496 million from the sale. The bid-to-cover ratio rose to 4.1 from 2.4.

even so....

Portugal slips into default territory

" Elisabeth Afseth, fixed-income analyst at Investec Capital Markets, said: “The growing worry that Greece will default is now hitting Portugal because of contagion fears. If Greece defaults, then the worry is so will Portugal. We have seen how quickly this crisis can spread.”

http://www.ft.com/intl/cms/s/0/486cf342-411e-11e1-b521-00144feab49a.html#axzz1jxe7ORMd

[Naam]

Betty of Investec Capital Markets voices a personal opinion. Naam posts facts.

-Portugal successfully raised the maximum amount it planned at an auction of its treasury bills on Wednesday...

-The bid-to-cover ratio for the 11-month paper was 2.1

-sold EUR 1.25 billion of the December 2012 bill at an average yield of 4.986 percent

-The country sold EUR 754 million of the security. Demand was 3 time the offer

-3-month debt was placed at a yield of 4.346 percent

default territory with these kind of interest rates and high bid/cover ratio? not today and not tomorrow! let's look at the situation again come next monday.

[ronz28]

Portugal's 3-,6- and 11-month paper that sold is a relatively short term debt fix of a couple of billion $. I didn't hear who bought it but its just a little lifeline of a couple of billion $. Their total debt is about half a trillion dollars. Their bonds are due for haircuts based on their financial condition and economic prospects.

Yields on Portugal's 10-year bonds climbed to 14.39pc on Thursday. Credit default swaps measuring bond risk have reached 1270 points, pricing a two-thirds chance of default over the next five years. http://www.telegraph.co.uk/finance/financialcrisis/9026144/Portugal-to-need-debt-haircut-as-economy-tips-into-Grecian-downward-spiral.html

It ain't over till the fat lady sings...

[12DrinkMore]

Manarak & 12,

discussing what and why does neither pay for dog food nor does it buy a lot of beer. why not concentrate on making a little pocket money?

GFW Cap XS0237509293 (T1 of Münchener Hypo). not sure yet whether it was mispricing, but it does not look like. if no mispricing then the food for my dogs is secured for decades.

yesterday when i was already sleeping this happened:

http://www.comdirect...TATION=16756510

And then

All over in the blink of Naan's eye, about 1.5 hours.... That'll teach you to take a nap

Hope the doggies won't go hungry, they can't eat the gold or carpets.

Edited January 20, 2012 by 12DrinkMore

[12DrinkMore]

I urge countries to tax distribution/import companies on their turnover instead on their profits.

I am not sure that would result in a fair system of taxation, or even be practicable. If the market forces were allowed to play out the balance would occur through the currency rate. With the advent of massive international organisations the cross border flow and pricing all becomes very amorphous, and the financial crowd have completely subverted the relevance of trade to the forex rates.

And on the subject of the financial crowd, where do you start taxing these guys? They can move vast wads of money in and out of countries around the globe, taxing real stuff and allowing the wide boys to get off just ain't fair.

Edited January 20, 2012 by 12DrinkMore

[manarak]

I urge countries to tax distribution/import companies on their turnover instead on their profits.

I am not sure that would result in a fair system of taxation, or even be practicable. If the market forces were allowed to play out the balance would occur through the currency rate. With the advent of massive international organisations the cross border flow and pricing all becomes very amorphous, and the financial crowd have completely subverted the relevance of trade to the forex rates.

And on the subject of the financial crowd, where do you start taxing these guys? They can move vast wads of money in and out of countries around the globe, taxing real stuff and allowing the wide boys to get off just ain't fair.

Finance guys:

Well, banks cannot hide their profits to the same extent importers can.

A tax on profits is ok to use on banks, I would also tax interest received and put a small tax on financial transactions. But to be effective, these taxes have to be levied everywhere.

The trade flows are mostly channelled through offshore trading companies. They buy cheap in China and sell expensive to Europe, and most of the profit stays untaxable, while the European distribution company makes +/- zero, while bleeding out the country with imports.

Tax them on turnover.

Edited January 20, 2012 by manarak

[manarak]

Manarak & 12,

discussing what and why does neither pay for dog food nor does it buy a lot of beer. why not concentrate on making a little pocket money?

GFW Cap XS0237509293 (T1 of Münchener Hypo). not sure yet whether it was mispricing, but it does not look like. if no mispricing then the food for my dogs is secured for decades.

yesterday when i was already sleeping this happened:

http://www.comdirect...TATION=16756510

Market doesn't seem to be very liquid.

Seems some poor sucker fired off a market buy order when the market maker was asleep...

Edited January 20, 2012 by manarak

[Naam]

Manarak & 12,

discussing what and why does neither pay for dog food nor does it buy a lot of beer. why not concentrate on making a little pocket money?

GFW Cap XS0237509293 (T1 of Münchener Hypo). not sure yet whether it was mispricing, but it does not look like. if no mispricing then the food for my dogs is secured for decades.

yesterday when i was already sleeping this happened:

http://www.comdirect...TATION=16756510

And then

All over in the blink of Naan's eye, about 1.5 hours.... That'll teach you to take a nap

Hope the doggies won't go hungry, they can't eat the gold or carpets.

whether Manarak is right or whether it was mispricing is now irrelevant. but it neither happened during napping time nor within 1½ hours.

-17.00hrs = Thai time 23.00hrs = Naam having a good nights sleep

-the 64 shown in your graph is next day

[Naam]

Portugal's 3-,6- and 11-month paper that sold is a relatively short term debt fix of a couple of billion $. I didn't hear who bought it but its just a little lifeline of a couple of billion $. Their total debt is about half a trillion dollars. Their bonds are due for haircuts based on their financial condition and economic prospects.

Yields on Portugal's 10-year bonds climbed to 14.39pc on Thursday. Credit default swaps measuring bond risk have reached 1270 points, pricing a two-thirds chance of default over the next five years. http://www.telegraph...ard-spiral.html

It ain't over till the fat lady sings...

-nobody said "it's over",

-if Portugal debt is "due" for haircuts why don't the bonds yield 50-80% instead of 6-15% depending on maturities?

-why does Portugal's sovereign bond (maturity mar22, 2037) trade at a yield of only 10.72% if a haircut is due?

[churchill]

WATCH: Irish Journalist Leaves ECB Official Speechless

http://www.businessinsider.com/video-irish-journalist-leaves-ecb-official-speechless-2012-1?utm_source=twbutton&utm_medium=social&utm_campaign=clusterstock

[lannarebirth]

WATCH: Irish Journalist Leaves ECB Official Speechless

http://www.businessi...gn=clusterstock

The Irish will not pay, but compared to other European basket cases, it's a drop in the bucket.

[flying]

WATCH: Irish Journalist Leaves ECB Official Speechless

http://www.businessi...gn=clusterstock

The Irish will not pay, but compared to other European basket cases, it's a drop in the bucket.

Tis true but it was fun to watch & I think he may be right when he said it will be the view of those who watched that the question was not suitably answered.

[lannarebirth]

WATCH: Irish Journalist Leaves ECB Official Speechless

http://www.businessi...gn=clusterstock

The Irish will not pay, but compared to other European basket cases, it's a drop in the bucket.

Tis true but it was fun to watch & I think he may be right when he said it will be the view of those who watched that the question was not suitably answered.

I do believe it was sufficiently not answered for any observer to gather the respondant's meaning.

[churchill]

Why the Euro is holding up ..

Germany has the economic strengths America once boasted...

http://www.latimes.com/business/la-fi-germany-middle-class-20120122,0,1551154,full.story

[flying]

Germany has the economic strengths America once boasted...

Of course

Germany does not squander all their income on the Military Industrial Complex

Nor do they take part in senseless skirmishes that last decades.

Lastly they actually still make things

Edited January 24, 2012 by flying

[Naam]

Germany has the economic strengths America once boasted...

Of course

Germany does not squander all their income on the Military Industrial Complex

Nor do they take part in senseless skirmishes that last decades.

Lastly they actually still make things

correction! one of my two nephews is stationed in Kunduz, Afghanistan since last december

[maiphedmaiaroi]

Thoughts please

Edited January 28, 2012 by maiphedmaiaroi

[12DrinkMore]

Urgent breaking news from Davos.... Maybe they have the fix????

http://blogs.reuters...ant-be-averted/

Or maybe not

This being the WEF, there was lip service paid towards the idea that a group of smart and powerful people, if you get them all in the same room, could come up with ways for the international community to improve the state of the world. But the actual participants didn’t show any sign of believing that: they were insightful with respect to diagnosing the state of the world, tentative in proposing solutions, and downright skeptical when it came to handicapping the likelihood that any of those solutions might actually be implemented.

And so the conclusion....

Certainly there seems to be no belief at all, even among the well-intentioned technocrats at Davos, that coordinated international action will or should solve this particular crisis. And the inevitable conclusion is that the crisis is not going to be averted: it’s only going to get worse

Any bets against this thread, after an amazing run three years and three days, not running for another three years?

11,000 replies and 250,000 views.

Unbelievable.

Edited January 28, 2012 by 12DrinkMore

[flying]

Any bets against this thread, after an amazing run three years and three days, not running for another three years?

11,000 replies and 250,000 views.

Unbelievable.

Nah I think we were just early risers

I think this thing will get rolling in earnest this year

[lannarebirth]

Urgent breaking news from Davos.... Maybe they have the fix????

http://blogs.reuters...ant-be-averted/

Or maybe not

This being the WEF, there was lip service paid towards the idea that a group of smart and powerful people, if you get them all in the same room, could come up with ways for the international community to improve the state of the world. But the actual participants didn’t show any sign of believing that: they were insightful with respect to diagnosing the state of the world, tentative in proposing solutions, and downright skeptical when it came to handicapping the likelihood that any of those solutions might actually be implemented.

And so the conclusion....

Certainly there seems to be no belief at all, even among the well-intentioned technocrats at Davos, that coordinated international action will or should solve this particular crisis. And the inevitable conclusion is that the crisis is not going to be averted: it’s only going to get worse

Any bets against this thread, after an amazing run three years and three days, not running for another three years?

11,000 replies and 250,000 views.

Unbelievable.

Can't find the link now, but I saw they held one symposium there on whether or not one should go all in on the new $64 Million private jet or is it better to buy an older one and have it refurbished?

These are the burning issues the world needs guidance on.

[Naam]

meetings, like the one in Davos, benefit only the participants, hotels, caterers, suppliers of delicacies and last not least expensive whores.

all paid for by the taxpayer

[aussiebebe]

Thoughts please

!

That's an interesting video - his unrestrained delivery belied the salient points that he made. I agree with him; both political sides created the present situation - the US deficit rose even under small-government proponents such as Regan. If you care to re-watch Clinton's final address, you'll understand American's anger; Clinton predicted that the US could be debt-free 'within a decade' but he failed to foresee that his successor would fight two wars, cut taxes, keep Greenspan around to prevent derivatives from being regulated and allow the 2008 meltdown to double the US national debt. For all of his rhetoric, however, it was Clinton himself who signed into law the Gramm-Leach-Bliley Act which repealed the 1933 Glass-Steagall act and endorsed the illegal merger of Citicorp with Travellers.

The guy in the video is right; everyone is responsible but no-one is acting responsibly.

[flying]

Thoughts please

Yes 100%

I saw it when it first appeared & agree 100%

I have said often that the system is beautifully broken

It no longer works & I think most realize it.

Which is why when Obama came along with his catch phrase of Hope & Change so many

bought it.

Yet it was not long after that many saw he was identical to the rest.

So yes I agree 100% but...I hope most folks realize short of anarchy the least we need to do

is elect a president that has no ties to either party. One that has no ties to the top ten campaign contributors of

all previous candidates. Or else we can expect the next cake to taste just like all the rest because the same recipe is

used over & over again.

Lastly if we should ever be so awakened to do that & elect such a person he will need more security

than the pope because he surely will not last long

[ronz28]

Portugal's 10 yr yield has about tripled over the last year so prices declined buyers purchased one year ago because price moves inversely to yield. Anyone who purchased one year ago will get a haircut now if they try and sell that same bond now as the price has declined. Bloomberg's chart of the Portuguese 10 year yield is here http://www.bloomberg...er=GSPT10YR:IND

Likewise for the Portuguese 30 yr yield that only about doubled in yield over the past year so the price decline is less than the 10 yr price decline.

http://www.bloomberg...er=GSPT30YR:IND

It looks like the market is betting there is a higher probability Portugal will not ever repay full principal so effective yield is jumping to attract buyers as holders are selling at less than par, a loss (haircut) of some of their principal which calculates to the higher effective yield that may be realized if Portugal actually does in fact repay then holders the full amount of principal.

Edited January 29, 2012 by ronz28