>>> the goal was never saving homeowners or Main Street....is instead the unregulated bets that were made in the OTC CDS space which were backed by exactly nothing;<<<
Bingo.
Chris Whalen from a recent AEI conference:
I think we’re going to see a third phase in this crisis where the losses, not only from financial assets that we can see on the balance sheets of financial institutions but in particular, the off-balance sheet derivative contracts that are “notional” now but as consumer defaults and commercial defaults rise, they become real.
What do I mean? We wrote about this on Monday. We put out a piece called In the Fog of Volatility: The Notional Becomes Payable. And what I meant by that is that if you’re a German bank and you took a punt two years ago on Lehman Brothers failing and you wrote a credit default swap that said I will indemnify you, the holder of Lehman Brothers bonds, and you paid me, let’s say 150 basis points. Two years go by, Lehman Brothers files bankruptcy, you German Landesbank bank have to come up with 9,700 basis points of cash. Okay? You’ve got paid a couple of hundred basis points each year for that insurance contract you wrote. You just had to come up with 9,700 basis points for the cash to perform on that contract. That’s a liquidity black hole. And I don’t think our policymakers realize what it’s going to cost our economy and the global economy in terms of liquidity, as many of the speakers were talking about before, to make these contracts good. In fact, I think when the politicians really get to understand that the bailout of AIG and the bailout of other firms on Wall Street is not to help mom and dad, and not to get lending restarted in this country, but [t] to bail out the credit default swap market. [/t] I think there’s going to be a political reaction in this country that’s going to burn the sides of people’s heads off, I really do. Nice happy thought, right? We’ve covered that.
and...
I think the regulatory issues, the social issues, everything else, are going to come to the fore because there’s no free lunch here whether you’re talking about Community Reinvestment Act, you’re talking about broad-based programs for loan modification, this is going to cost a lot of money. And I think once politicians realize just how much of a subsidy is not going to helping consumers, businesses, the real economy, and [t] how much of it is really going to the virtual speculative economy, [/t] we’re going to have a very interesting political debate in this country.
I listen to:
Nouriel Roubini,
Chris Whalen,
Alex Pollock,
Stephanie Pomboy,
Jimmy Rogers,
Meredith Whitney
Ivy Zellman |
