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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: elmatador who wrote (48129)	4/4/2009 2:46:01 AM
From: Haim R. Branisteanu	5 Recommendations Read Replies (1) \| Respond to of 220187

The World Wide Credit Crunch Wanted to throw in my 2 cents related to the credit crunch which is artificially made by commercial banks whose management’s world over should be dismissed put on trial and send to jail. The situation is not one bank specific but encompasses banks in EU and the US and I assume also the rest of the world. Example 1: As many know on this tread I also trade currencies. The leverage ratio in most cases was 1:50 on the majors. More recently the bank I work with lowered the ratio to 1:20 even that I seldom went over 1:10 leverage, as the 1:5 leverage is my preferred position. Not enough that they lowered the leverage ratio they also took way over the above mentioned ratio as collateral - meaning in practice a 2:1 to 3:1 colaterization, it does not bother me but on a global view those very active in trading can only have an exposure of about 30% from what they had let say in 2007 - which partially explains the financial markets debacle - and it has nothing to do with so called toxic assets!!! Example 2: I hold at an EU bank GE Australian bonds. Until first half of 2008 the bonds where counted as 100% collateral or the equivalent of cash. By mid 2008 the bank decided to take a 5% haircut from the collateral allocated to the bonds - meaning if they where for example 100K AUD then they will extend only 95% of market value even that the bonds traded at par + interest and GE had a AAA rating. By autumn of 2008 they hiked the discount ot 12% of market value, even that the bonds continued to trade at par. Today the bank counts only 80% of the market value of my GE bonds, at a time that he bonds trade at a small discount around 98.5%. This conduct is outrageous, and induce selling of securities mostly debentures for pure economic reasons. In short instead of having AUD 98,500 as collateral (based on mark to market) I actually have only 80% of the AUD 98,500 as collateral which is AUD 78,800 How this effects my ability to trade and presumably make money? Well assuming a modest leverage of 1 to 10 my available exposure to FX markets is lower by AUD 200,000. In real life instead of being able to take position of AUD 2 million I get a haircut to AUD 1.8 million by using those bonds as collateral which yield now something around 6% or about AUD 500 a month. As I make more than AUD 500 a month on a AUD 2 million position it makes no economic sense to continue to hold on to those bonds (luckily the AUD bonds are only a small part of my collateral). Why GE is not protesting this conduct on part of EU banks is beyond me – after all if GE stays put it will hurt their own ability to raise capital and further depress their debentures without any logical justification! Net result I am selling and this puts additional pressure on debentures. As I assume I am not alone and the effect is worldwide it partially explains the current credit debacle that has nothing to do with reality and is man made more correctly made by stupid bankers whose place is not in the free world. Unfortunate no one has addressed this issue of over-zealous risk management attitude and I think it is reflective of a big chunk of the present financial debacle.