Bailing Out The Banks And Cds

[12DrinkMore]

I have been mulling away over all the statements issued by the governments that they are bailing out this and that bank to the tune of 20,000,000,000 Quid or Dollars, more or less the same anyway. And then another, and then another.

And all this is to "get the banks back to normal lending again".

But hang on here, how does all this work?

Where are all these billions upon billions going? Does the bank suddenly have this humongous chunk of cash roll into the vaults? What happens to it? What are the banks doing with it?

Is this the same money as the billions and billions that they are borrowing from the BoE at previously 12% (WOW, wish I could get that) and now, I believe, reduced to 5%? And if they are having to borrow from the BoE at that rate, why can't they offer depositors say 4% and save a lot on their borrowing costs?

"Rebuilding the balance sheet" is a term also mentioned. What does that mean? It doesn't make sense to me if you are borrowing money from the government then it is something that has to be repaid. So the net effect on the balance sheet is zero.

Maybe I've missed something here, but does anybody have any clear description of it?

Fractional Reserve Banking was easy to understand.

But we have these "Credit Default Swaps" which have a total market of 40,000,000,000,000 USDs or GBPs or EURs, the're all the same. Now, I understand one of these little devils, as it is basically an insurance against a debtor not coming up with the readies. So one bank makes a loan and then insures itself against the value of the loan. Sounds reasonable. And I also understand that they can't be called insurance policies, because then there are nasty regulations to abide by, and none of us like them.

But then it sort of got complicated when I found out that both "ends" of the swap could be sold off independently. So the original parties carrying the liabilities have sold off the liabilities to somebody else, presumably for a profit. And then they could be sold off again , and again and again.

And then it got even more confusing when I read that the party insuring the debt could also take out another swap against the SAME debt going bust. And then this swap could also be sold at "both ends". And presumably also be sold off again , and again and again.

This sort of sent my brain into overdrive and uttter confusion. So I drank some beer and gave up trying to think.

But then a bit later I read somewhere else (you can see I have a lot of time on my hands) that the whole CDS market is like buying a car and then several different and totally unrelated parties insure the same vehicle.

In fact, it seems that virtually nothing is know about the size of the market, because it is all unregulated and it's all individual contracts. So we have estimates of 40,000,000,000,000 that's 40 TRILLION USDs of insurance contracts and now the car has crashed but the big problem is, NOBODY HAS A FUKCING CLUE WHO HAS INSURED WHAT AND FOR HOW MUCH!!!

Is it a wonder that figures of 20 BILLION are bandied around? It's just peanuts in the whole scheme. Is is just a preparation for the lead up to the TRILLION Dollar bailouts, which cannot take place surely?

But I also read that there are not massive numbers of people defaulting on their mortgages, the figure is "only" some 5%, but 95% are still paying off the debts.

WOW! What happens if another 10% don't pay up as they are all being kicked out of jobs? Does that release another huge tsunami of CDS insurances?

My head hurts, any paracetamol going?

Edited January 27, 2009 by 12DrinkMore

[basjke]

I have been mulling away over all the statements issued by the governments that they are bailing out this and that bank to the tune of 20,000,000,000 Quid or Dollars, more or less the same anyway. And then another, and then another.

And all this is to "get the banks back to normal lending again".

But hang on here, how does all this work?

Where are all these billions upon billions going? Does the bank suddenly have this humongous chunk of cash roll into the vaults? What happens to it? What are the banks doing with it?

Is this the same money as the billions and billions that they are borrowing from the BoE at previously 12% (WOW, wish I could get that) and now, I believe, reduced to 5%? And if they are having to borrow from the BoE at that rate, why can't they offer depositors say 4% and save a lot on their borrowing costs?

"Rebuilding the balance sheet" is a term also mentioned. What does that mean? It doesn't make sense to me if you are borrowing money from the government then it is something that has to be repaid. So the net effect on the balance sheet is zero.

Maybe I've missed something here, but does anybody have any clear description of it?

Fractional Reserve Banking was easy to understand.

But we have these "Credit Default Swaps" which have a total market of 40,000,000,000,000 USDs or GBPs or EURs, the're all the same. Now, I understand one of these little devils, as it is basically an insurance against a debtor not coming up with the readies. So one bank makes a loan and then insures itself against the value of the loan. Sounds reasonable. And I also understand that they can't be called insurance policies, because then there are nasty regulations to abide by, and none of us like them.

But then it sort of got complicated when I found out that both "ends" of the swap could be sold off independently. So the original parties carrying the liabilities have sold off the liabilities to somebody else, presumably for a profit. And then they could be sold off again , and again and again.

And then it got even more confusing when I read that the party insuring the debt could also take out another swap against the SAME debt going bust. And then this swap could also be sold at "both ends". And presumably also be sold off again , and again and again.

This sort of sent my brain into overdrive and uttter confusion. So I drank some beer and gave up trying to think.

But then a bit later I read somewhere else (you can see I have a lot of time on my hands) that the whole CDS market is like buying a car and then several different and totally unrelated parties insure the same vehicle.

In fact, it seems that virtually nothing is know about the size of the market, because it is all unregulated and it's all individual contracts. So we have estimates of 40,000,000,000,000 that's 40 TRILLION USDs of insurance contracts and now the car has crashed but the big problem is, NOBODY HAS A FUKCING CLUE WHO HAS INSURED WHAT AND FOR HOW MUCH!!!

Is it a wonder that figures of 20 BILLION are bandied around? It's just peanuts in the whole scheme. Is is just a preparation for the lead up to the TRILLION Dollar bailouts, which cannot take place surely?

But I also read that there are not massive numbers of people defaulting on their mortgages, the figure is "only" some 5%, but 95% are still paying off the debts.

WOW! What happens if another 10% don't pay up as they are all being kicked out of jobs? Does that release another huge tsunami of CDS insurances?

My head hurts, any paracetamol going?

One word comes to mind.S.C.A.M.

[lannarebirth]

Though they claim its about freeing up lending that just isn't true, Many many banks are technically insolvent when financial instruments used as their "reserves" are marked to market. The cash infusions serve to get them back in compliance.

[AlexLah]

You tinking too mut!

I tried to understand as I also have a lot of time on hand but I gave up, seems nobody really understand what they are and how to use exactly.

I think it is possible to buy an insurance for you sneezing in my backyard on a Sunday afternoon in August 2012, you can then make a bet for it to happen and another one for it not to happen and you can also bet for it to happen before that date or not and then insure your bet's incase you have to pay out.

That is what I understood from it, but then again as I said I gave up, too much headache.

[mommysboy]

The figure of 400 trillion zillion quillion is the highest amount of exposure and would only be used if 100% of the loans went bad. As it is perhaps less than 1% will go belly up although that is still quite some money and more.

Banks appear insolvent because their assets are probably very undervalued ( just as they were very overvalued).

A large proportion of the cash injections were used to increase tier 1 reserves, ie, to provide a cash cushion in case of inordinate loss and remain unused

A 28 billion writedown, eg, RBS, is not the same as a 28 billion write off, is not the same as a 2008 yearly loss on the profit and loss, and is not the same as a cash loss on tier 1.

Given the amount of postings you start on the subject, wouldn't it have been better to ask these questions first?

[AlexLah]

Here a video that explains it very simply.

[meom]

My head hurts, any paracetamol going?

This article explains a bit about the CDS market http://www.aei.org/publications/pubID.29158/pub_detail.asp

[bangkokrick]

Citi bank were recently bailed out by the US Government to the tune of 48 Billion US. Yesterday they tried to purchase an executive jet for 47 million US dollars, but word got out and they were called to the senate to have their knuckles rapped. Needless to say they had to cancel the order.

Thats how it works the banks are taking the piss at the tax payers expense.

Cheers, Rick

[AlexLah]

Actually they wanted to sell their other 2 planes at 27 Million each so that would have saved them a few million, plus the fact that maintenance 1 plane is cheaper then 2. I agree however that they should have sold those 2 old planes first and then buy a new one.

Yo 12, after visiting the YT link are things a bit more clear now, you perhaps now also know what balancing the books mean?

If you want to know a bit more about how wall street/investment banks is manipulating the price of stocks I highly recommend the following clip:

http://video.google.com/videoplay?docid=4490541725797746038

It is a bit long 25 mins. but worth it.

Edited January 28, 2009 by AlexLah

[bangkokrick]

Actually they wanted to sell their other 2 planes at 27 Million each so that would have saved them a few million, plus the fact that maintenance 1 plane is cheaper then 2. I agree however that they should have sold those 2 old planes first and then buy a new one.

Yo 12, after visiting the YT link are things a bit more clear now, you perhaps now also know what balancing the books mean?

If you want to know a bit more about how wall street/investment banks is manipulating the price of stocks I highly recommend the following clip:

http://video.google.com/videoplay?docid=4490541725797746038

It is a bit long 25 mins. but worth it.

Alex i find your arrogance quite alarming. There is nothing that you could possibly teach me about balancing the books and i now know what the other posters mean when they reply to your 'know it all remarks'.

The point is they should not be purchasing any planes at all at this moment in time.

Rick

[AlexLah]

Gosh, yes I know they should travel by bus or train or something.

That would give them a much better image.

Fact is that people are posting stuff here without telling the whole story.

I do not agree at all what those bankers are doing and I do not try to defend them.

I just ask when people are posting, to include the whole story, that is all.

Do you agree?

Me posting a link to a very good site that explain a lot of things I find helpfull, many of us including me have no idea about this financial stuff and what is happening.

I did not know what balancing the book was all about, after seeing the video I finally understand.

I really do not understand why you think I am arrogant as I just want to share information and help all of us understand things better, by posting a link to a videoclip that will help you understand those financial stuff a bit better.

Just asking 12 if he know also understands about balancing the books is just asking if he found the video about CDS usefull as it will turn up other interesting video's such as balancing the books.

I am not the bad or conspiracy guy you know, just like to see us all understand things better.

[bangkokrick]

I don't honestly think that they can do much more to damage to their image than they have done already. They have lent money to people that can not afford to pay back and then they are indirectly bailed out by the people that they lent money to. Great system.

They should be made to walk.

By the way you seemed to have changed your mind about the bank conspiracy theory that you have recently posted and you do seem to be defending the establishment on this one.

Cheers, Rick

[AlexLah]

I really do not defend "The establishment" in fact I despise them.

The only thing I keep telling is to let us find out the real story.

Why is it that so many people keep bashing me why I only ask for the fact's to be presented?

[bangkokrick]

I really do not defend "The establishment" in fact I despise them.

The only thing I keep telling is to let us find out the real story.

Why is it that so many people keep bashing me why I only ask for the fact's to be presented?

So then we can start the revolution!

Cheers, Rick

[H2oDunc]

I was mildly amused to read that in the USA they asked 21 banks that had each received over a billion dollars in bailout money each what they had done with the cash. All 21 either refused outright to say what they had done with the cash or could not say what they had done with the cash. Oh and they all asked for more cash . You couldn't make it up .

Someone also worked ot that the cost of the bailouts in the USA works out at 2 million dollars for everyone over the age of 21. His plan was to give everyone over that age 2 million dollars rather than the banks. That he said would stimulate the economy far better than what is happening now.

The way I read it is the tax payer is giving the banks billions so they can then lend it back to the tax payer and charge them interest on the loan? Am I missing something here ??? I would just give it to the tax payer to start off with and cut out the middle man

Its a bit like the UK tax credits system. How can it possibly be cheaper and easier to tax somebody, then have a vast, costly department to then give them some of it back as a tax credit ? I'm no financial genius but surely it would be easier and far cheaper to just not tax them in the first place. ???

[quiksilva]

I really do not defend "The establishment" in fact I despise them.

The only thing I keep telling is to let us find out the real story.

Why is it that so many people keep bashing me why I only ask for the fact's to be presented?

Because they are members of the Illuminati and are monitoring your brain waves because you know too much!

However, never fear Quiksilva's Protective Helms are made from finest quality metal foil and are now available at a credit crunch price, see ad in the classified section or PM for pricing!

The Truth Is Out There!

[thaihome]

I was mildly amused to read that in the USA they asked 21 banks that had each received over a billion dollars in bailout money each what they had done with the cash. All 21 either refused outright to say what they had done with the cash or could not say what they had done with the cash. Oh and they all asked for more cash . You couldn't make it up .

Someone also worked ot that the cost of the bailouts in the USA works out at 2 million dollars for everyone over the age of 21. His plan was to give everyone over that age 2 million dollars rather than the banks. That he said would stimulate the economy far better than what is happening now.

The way I read it is the tax payer is giving the banks billions so they can then lend it back to the tax payer and charge them interest on the loan? Am I missing something here ??? I would just give it to the tax payer to start off with and cut out the middle man

Its a bit like the UK tax credits system. How can it possibly be cheaper and easier to tax somebody, then have a vast, costly department to then give them some of it back as a tax credit ? I'm no financial genius but surely it would be easier and far cheaper to just not tax them in the first place. ???

Could you provide a reference to your statement that 21 banks refused to say how the over billion dollars they got was used?

Also, your reference to the 2 million for everyone over the age of 21. By my calculation that comes to some 446 trillion dollars. I have heard numbers like that to describe the entire exposure in the derivative markets, but certainly not what the bailout money is.

Methinks you are perhaps using a bit of hyperbole here.

TH

P.S here is my calc:

306,000,000 Population of US

X 73% Aproximate % of people over 21

= 223,380,000

X 2,000,000

= 446,760,000,000,000

[AlexLah]

Quicksilva, so you think they are floating around on this board here?

Indeed there are some suspicious peeps here that are in a constant state of denial.