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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (10146)	10/3/2008 10:28:09 AM
From: Terry Whitman	2 Recommendations Read Replies (1) \| Respond to of 33421

Never been to Tokyo, so I don't have a real feel for how big or expensive the emperor's grounds are. I should think the whole city of Tokyo even, should still be less valuable than the entire state of CA, but there are many folks here in the Midwest here that would probably disagree with that statement. -g- Some relevant quotations from people much smarter than I: >The free market punishes irresponsibility. Government rewards it. – Harry Browne The economic miracle that has been the United States was not produced by socialized enterprises, by government-union-industry cartels or by centralized economic planning. It was produced by private enterprises in a profit-and-loss system. And losses were at least as important in weeding out failures, as profits in fostering successes. Let government succor failures, and we shall be headed for stagnation and decline. – Milton Friedman The elementary truth is that the Great Depression was produced by government mismanagement [of money]. It was not produced by the failure of private enterprise. – Milton Friedman The fact throughout history is that whenever government dominates the economic affairs of its citizenry, a free society is eroded, then destroyed, and a minority government ensues. Personal liberty without economic liberty is an absolute contradiction; the one cannot exist without the other. – William E. Simon The desire of businessmen for profits is what drives prices down unless forcibly prevented from engaging in price competition, usually by governmental activity. – Thomas Sowell < americanrevival.org

To: John Pitera who wrote (10146)	10/3/2008 10:31:58 AM
From: Hawkmoon	Read Replies (1) \| Respond to of 33421

John.. Interesting article as to why the banks are hoarding cash (which probably explains decline in commerical paper transactions). They might be getting prepped for the CDS auction that's coming up.. They're not sure of their actual liabilities, so they are hunkering down. nakedcapitalism.com ft.com Settlement day approaches for derivatives By Aline van Duyn in New York Published: October 1 2008 03:00 \| Last updated: October 1 2008 03:00 The $54,000bn credit derivatives market faces its biggest test this month as billions of dollars worth of contracts on now-defaulted derivatives on Fannie Mae, Freddie Mac, Lehman Brothers and Washington Mutual are settled. Because of the opacity of this market, it is still not clear how many contracts have to be settled and whether payouts on the defaulted contracts, which could reach billions of dollars, are concentrated with any particular institutions. According to dealers, insurance companies and investors such as sovereign wealth funds, which are widely believed to have written large amounts of credit protection through credit default swaps on financial institutions, could have to pay out huge amounts. "There is a lot at stake," said an executive at one big dealer. "This is a crisis time, and if these auctions do not go well, or if the amounts investors and dealers have to pay is seen as not being fair, it could have further negative repercussions on the CDS market." The "auction season" starts tomorrow, when the International Swaps and Derivatives Association has scheduled an auction for Tembec, a Canadian forest products company. This is followed by Fannie Mae and Freddie Mac auctions on October 6. Then, Lehman is settled on October 10, and Washington Mutual is scheduled for October 23. Even though it is possible that some participants in the credit derivatives market will have to make large payouts, the flipside is there could also be big winners. For every loss in credit derivatives, there is a gain. The amount of contracts outstanding that reference Fannie Mae and Freddie Mac alone is estimated to be up to $500bn. The default was triggered under the terms of derivatives contracts by the US government's seizure of the mortgage groups, even though the underlying debt is strong after the explicit government guarantee. The CDS contract settlement could result in billions of dollars of losses for insurance companies and banks that offered credit insurance in recent months. The recovery value will be set by auction. Usually, the bond that is eligible for the auction that trades at the lowest price - the so-called cheapest-to-deliver - is the one that sets the overall recovery value for the credit derivatives. In the Lehman case, numerous banks and investors have already made losses due to exposure to Lehman as a counterparty on numerous derivatives trades. The auctions next week are for credit derivatives which have Lehman as a reference entity. There are likely to be fewer contracts outstanding than for Fannie Mae and Freddie Mac because Lehman was not included in many of the benchmark credit derivatives. However, exposure remains unclear, which is one concern that regulators now have about the credit derivatives market. Lehman's bonds have been trading between 15 and 19 cents on the dollar, meaning investors who wrote protection on a Lehman default will have to pay out between 81 and 85 cents on the dollar, a relatively high pay-out. The previous biggest default in credit derivatives was for Delphi, the US car parts maker that went bankrupt in 2005 and which had about $25bn of CDS. Hawk