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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Little Joe who wrote (101144)2/11/2009 2:22:03 AM
From: Hawkmoon  Read Replies (1) of 110194
 
It is impossible to lose money running a bank with a 10-1 loan ratio, if it is prudently managed.

Not when all of their collateral/capital is forced to be marked to market and leads their borrowers to walk away from their loans.

Go back to 2007 and correlate that with FASB 157 being applied against mortgage backed assets and the manipulations in the CDS markets. We all know that J. Paulson made mega-billions shorting the bonds/banks while go long the CDS contracts (shorting the bonds/debt with limited risk). He knew that with Mark to Market accounting, he could pressure the bonds by going long the CDS and shorting the banks/bonds. Almost a license to print money.

The CDS markets are distorting the entire structure of the bond markets, even at 10:1. Because anyone daring enough to write (sell) a CDS contract is effectively exposing themselves to a short-squeeze and unlimited losses.

But I don't disagree that many of these bankers need to face criminal charges for their over-exposure and collusion with the Rating Agencies (the officers/analysts of which should definitely do jail time for over-rating these financial instruments in the first place).

Hawk
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