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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: Tommaso who wrote (11921)	9/28/2008 11:49:25 AM
From: robert b furman	1 Recommendation Read Replies (1) \| Respond to of 71454

Hi Tommaso, Hard for me to see an inflationary environment when housing 5% of our economy has been in a viciouos deflationary spiral. It is real estate's deflation that is causing the toxicity of the CDO's(Collateralized Debt Obligations) and MBS's(Mortgage Backed Securities).The CDS (Cerdit Default Swap)aspect of this is not being mentioned because it is so big and trully the reason for the fear and recent company specific government bailouts. That being said, if there is liquidity to the underlying real estate - buyers will scoop up foreclosed deals or people living in their homes keep paying,then the CDO's have a cash flow (at whatever rate that actually is).That cash flow can then be discounted at time value and their is a value/market for them. A price at which many small investors/banks will buy them from the treasurey. I have a contact at a large bank that sold many CDO's. They guaranteed a yield on these.If the underlying CDO has too many foreclosures the bank is on the hook for the yield to be maintained and the loss of principal eventually comes home to roost at the bank. If you hold a CDO right now - you're praying it goes back to the bank upon expiration/renewal(if the bank still exists - thusly the reason for FDIC takeovers). I believe this to be correct - would love confirmation of this. I think this is why banks have been scrambling for additional capital - these renewals are coming back to the banks daily, and the cash needs are unknown. If it pays out great,they've got cash flow. If it doesn't they can be sold and the benchmark is Merrills 20 cents on the dollar. Somewhere in there is the intrinsic value of the land and the building on it - which would require foreclosure (that may be hard to do since the CDO's are sliced and diced - so who really is there to do the foreclosing? Then we have the additional night mare of the Collateralized Default swaps that were sold to insure the principle at face value - right. That insurance was as ineffective as the debt rating of Triple A on the CDO's was - (there should be some jail time for both of these scams for many). Suffice it to say that the government bailing out AIG was the direct result of a small portion of AIG's business - a division that sold insurance on CDS's.The government didn't want the CDS world to collapse and trigger a 62 trillion dollar cluster _uck! Trouble with that CDS insurance is NO ONE has 62 trillion in assets to cover the total claims-which only a collapse would prompt. Of course, of the 62 trillion, a subset of that is real estate related. Then again the intrinsic value of the underlying real estate is the big chunk of what doesn't need insurance. It seems to me there is a lot of fear mongering going on about the entire ponzi scam. It is important to look at the forest from afar. I believe the biggest risk/losses that will/should come from this is: The credit default swap premium is up in smoke and gone - the banks eat this as they got it and bonussed some or all of it. The realestate that is paying is ok and will be no problem - even though its resale value may now be diminished. The realestate that has been foreclosed on and the losses have or will be determined will also come out of the banks hides.They have the interest revenue of that which is working/paying to offset these losses. The treasuries bet that 700 billion is enough to do it and do it right, sounds fair.It is 5% of the total real estate debt. Most will simply pay the mortgage and enjoy the home they love and want - afterall since when is a 6 % mortgage high? - I remember paying 13 in the 80"s. This is being lost by all of the doomsayers. In between everything is toxic and nobody trusts anybody's money. The banks are holding onto their cash period - they may need it. As these assets get devalued more capital is needed. Cash is king and if you've got it - you make the buy in on your terms I.E. Buffets buyin on GS. If the government can stop the decline in these CDO's the banks need for more capital stops. If you are a bank and overexposed - you take a hit and sell your toxic stuff to the treasurey. If you have assets a plenty, and are a bank -you can go to the treasurey and buy you some deeply discounted mortgage paper and probably make a killing if you hold it to maturity.The treasurey having bought it and repackaged it - will in a sense have sterilized the toxicity - with the full credit of the american taxpayer. Think of these after they start going up in price a huge windfall to the treasury.I think they'll be held for no more than 3-4 years.We have one last year of BS paper and it is cresting now. That will happen when the market stablizes - right now Warren is catching a falling knife - my bet is he knows something. He certainly has inside infor with AIG - I think. The credit default swap (CDS) derivatives are as he said weapons of wealth destruction.AIG and many European banks have and will prove this out. My bet is they will be retired upon expiration (most are 3-5 years in duration).They will get retired when the government out waits their expiration date and then resales the sterilized CDO's. This I bet will be the holding length of the treasuries CDO's also. Once the realestate CDS's expire - they'll never happen again and CDS will be used for international trade like they originally were created.If that even ever happens again. I suspect we get a creative name change. Just my musing on a pretty day. Bob

To: Tommaso who wrote (11921)	9/28/2008 1:16:55 PM
From: GST	2 Recommendations Read Replies (1) \| Respond to of 71454

<the depreciation of the currency destroys the debt overhang> Those who misguide themselves into believing that deflation is even possible much less likely, never come to terms with the 'value' of the dollar. We are defaulting via inflation -- that is default, pure and simple. It is what nations do when they have debts they cannot repay. Inflation at this point is not 'probable' -- it is a given.

To: Tommaso who wrote (11921)	9/28/2008 1:58:49 PM
From: axial	Read Replies (1) \| Respond to of 71454

Yes, and no... "If I am wrong, someone please correct me." This isn't a correction. He argues for a "standard" and chooses gold. But he also says: "If a country adopts a non-inflationary policy and clings to it, then the condition required for the return to gold is already present." Gold versus Paper mises.org --- I think it's pointless to get into an argument about inflation/deflation: many people think a stable CPI is "zero inflation". "Target inflation" isn't "no inflation". Most people readily accept the fact that yesterday's dollar is worth more than today's, without inquiring into why that is so. There's a whole minefield of semantic traps within the debate, where many conflate different relative measurements with different logical premises: thus the convenience of a "standard". Yet, as we've seen with POG, value can change relative to POO, and has been short-term susceptible to interventions of its own. Agreed that governments have an array of mechanisms by which they can temporarily alter the effects of macro events. I'm a student of the subject, and not a very advanced one. On a philosophical level, I view economics as a construct by which everyone (by coercion or assent) is governed, until it doesn't work any more. That is, the construct is stressed, and fails. Efforts to reduce economics to mathematical certainties are at best approximations, no more valid than Einstein's attempts to produce a Grand Unified Theory. No one would argue that Einstein's magnificent contributions were insignificant. But the totality eluded him - and still eludes us. As a belief - not a certainty - I don't agree that adherence to a standard will obviate the stresses of macro events, and the need for different constructs. In my view, economics is as much the sum of human intercourse (the play is intentional) as physical entities and interactions. In the present, we don't need economists to tell us what will happen. History can be our guide. The question of a standard aside, will unfolding events disprove von Mises' theories? Or did von Mises restate history as economic theory? JMO, Jim