As Greg Peters Head of Credit Strategy at Morgan Stanley said in his Bloomberg interview yesterday, this weeks blow up of Bear Sterns and the FED coming up with the extraordinary backstop highlights that counterparty Failure and Risk is the Central Narative of the story. This is a Theme I have harped on consistenly for 2 years.
The Biggest Nightmare going forward is the Huge, Unquantifiable, Unknown counterparty Risk in the 45 Trillion dollar Credit Default Swaps Market. Do you realize that there are market participants out there that are hitting grand slams with Credit Default Swaps that were bought for cents on the dollar that have been marked to market by the winners have been put in the proverbial Bottom Drawer by those who wrote the CDS's .....Investment Banks, Hedge Funds, Foreign Investment entities and god only knows,
I am of the impression that Bear is the Enron of this saga sure there are assets to be sold off, just as Williams bought the natural gas pipelines to the east coast, but the equity holders are very nervous.
This url shows MER leading the pack with 24.5 Billion in write downs so far, lets keep an eye on them.
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bloomberg.com
IKB Deutsche is going to be interesting to watch, Bear Sterns was listed at 2.6 Billion and we know that number is going to get higher. Lehman ..... is everything really marked to market there? HSBC has probably got more to tell us. Notice that only 1 Japanese company is on the list... Interesting there banks have been so decimated by the collapse of their market from Dec 31 1989 to the multiple bottoms over the past 15 years or so that they were not playing large in this area
The bright spot is that the FED has the ability to monetize every last darn thing in the solar system unless belief in the USD totally collapses. We really don't want that to happen.
of course Chinese and Indian Equities and Markets are cooling down, as our base metals, as is the US economy etc, So we get the real test of our friendly central bankers abilities.
As Bill Murray says as he signs his US Army contract in the great movie "Stripes" ....(Uncle) Sammy, get well soon.
John |
