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Strategies & Market Trends : John Pitera's Market Laboratory

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To: bentway who wrote (12169)	3/21/2009 8:19:32 AM
From: John Pitera	3 Recommendations Read Replies (3) of 33421

Hi Bentway, you are correct and the situation was so much worst back in 2005 and 2006. These Credit default swaps were written as an over the counter each one is unique manner and the FED became highly alarmed when they found that the actual paperwork being done in the back office of the 16 biggest dealers in CDS and CDO's was running on average a month behind in processing trades that were completed weeks before. I was a proprietary trader for Chase Manhattan in the late 1980's and one of the first things I was told is that we had a department that assiduously kept track of our CounterParty exposure and credit and trading limits with the other banks. This process got so out of whack that the traders of the CDS's could be writing and trading positions potential several times with no live time controls on where the counterparty risk was on the other end and also if too large of a Credit Line had been extended to another Bank, Hedge fund etc. I have written extensively about this since Sept of 2005, at some point in the near future I may be working with a partner or two on getting up the key timeline of events on a website that will walk us back through not only how this CDS meltdown occurred but all the warning signs provide on page 1 of the WSJ, Bloomberg, Institutional Investor as well as many of the connecting of the dots and my calculation of forward estimates as to how large the losses would grow to be. I believe I was actually ahead of Roubini and the others in saying it would be a half a Trillion problem, then a Tillion dollar problem, and further more upping it to 6 Trillion and up to at least 10 Trillion in cummulative credit contraction. I may get my buddy from New York to assist on this and a couple of other potential initiatives. John

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