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Putting The Question Of Evil Sovereign CDS Speculators To Rest
Dear Mr. Bernanke, dear idiots at the SEC (to paraphrase an extremely observant Harry Markopolos), and dear everyone else who is just an empty chatterbox and a mouthpiece for other conflicted interests, who claim baselessly that it is all the CDS traders' fault that Greece is about to be flushed down the toilet. We present to you the ratio of cash to synthetic (CDS) exposure. As Bloomberg points out, the "maximum amount on the line if 10 government defaulted, $108 billion, is 0.98% of their combined $11 trillion in sovereign debt." So these less than 1% marginal players are now blamed for the end of civilization? How about blaming sellers of cash bonds? Or, here's an idea, how about actually looking at the root cause, like for example governments, who with the assistance of Goldman Sachs, have lied for a decade about the true state of their finances, and have misrepresented on sovereign prospectuses all their economic exposure for years, which was subsequently signed off by countless auditors and lawyers. The corruption goes to the very top, and the SEC idiots are now investigating CDS traders? There will be no end to the insanity and lunacy, until there is a revolution in this country, or until CNBC allows a rational and objective person to talk on its network, whichever comes first.
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bravo!
Quick men, a distraction! Feignt to the bond vigilantes, meat eaters or global warmig deniers! Hurry, they're on to us!
Quick men, a distraction! Feignt to the bond vigilantes, meat eaters or global warmig deniers! Hurry, they're on to us! Three Stooges re-runs. Anything!
Quick men, a distraction! Feignt to the bond vigilantes, meat eaters or global warmig deniers! Hurry, they're on to us! Three Stooges re-runs. Anything!
My vote is revolution. Television networks are only important if you watch them and buy the trinkets hawked by their advertisers.
Can I buy futures on the revolution?
Actually you can. Its called canned food.
nah, stay away from the derivatives. Try direct investment instead.
http://www.cabelas.com/shotshell-reloading.shtml
say hello, get a hello back...send out a shotgun blast, get two back.
Allowing a rational and objective person on CNBC is an "extinction-level" event.
And those happen about once every 65 million years. On average.
As a geophysicist I take extra delight in that comment.
So we're about due...
No way! CNBC hasn't been on the air for anywhere near 65 million years.
PIGS? Try GUFI...as in goofy governments in the heart of Europe.
Clowns.
any government genuinely interested in sanity would also be hauling GS execs, under oath, before investigative committees to explore their subversion of the global financial system.......but then again, those same governments are all going to need those exact same services from GS, so best not to upset them.
GS will be recruitlng in second and third tier MBA mills, giving out gold-plated blood funnels in their goodie bags.
any government genuinely interested in sanity would also be hauling GS execs, under oath, before investigative committees to explore their subversion of the global financial system.......but then again, those same governments are all going to need those exact same services from GS, so best not to upset them.
Explains why there will never be a real investigation of GS. Its easy to imagine GS helping cook US books. One wonders why Obama is changing his mind about GS. Is he told about this cooking ...
Gov't = GS
GS = Gov't
Not too many self-policing bodies out there that I know of.
On a related note, I'm not a fan of GS by any means, but when it comes to Greece let's not point the finger squarely at the Goose. They're simply enablers for a gov't that willfully swept their financial situation under the rug (legally I may add) and pretended everything was peachy. Despicable? Yes. Morally and ethically questionable? Absolutely. But that's not why they're in business is it?
"...until CNBC allows a rational and objective person BECOME A FULL-TIME HOST on its network"
ROFLMAO because the day that happens is the same day the Federal Reserve will voluntarily allow a full and complete audit, GLD will admit that a majority of their gold holdings is also loaned/leveredged/papered multiple times and Kitco will admit their Pool accounts are all dried up.
Deflect blame, the politicos aren't going to put their heads on the chopping block.
'There will be no end to the insanity and lunacy, until there is a revolution in this country, or until CNBC allows a rational and objective person to talk on its network'
Same thing?
Would count Santelli as the exception, but discovered the other day he's a chainsmoker.
''No es muy inteligente'
By the way TD ... use Hee-Haw when referencing CNBC.
Addicts often are some of the most creative, driven, people in the room. I don't like being around smoke, but I would never write off a chain smoker as not smart. Some of the ones I know have just the right kind of dark side feindishness to their personalities to be able to think outside the box when no one else can.
To say this a different way: Some of my best freinds are chain smokers. Slaves, true. But also creative as hell.
http://www.reutershealth.com/archive/2010/02/23/eline/links/20100223elin...
Good counter punch. I am never-the-less, not convinced. The study participants are potentially a nonrepresentative sample of smokers:
On one hand, a nice N, on the other hand, it is young men who were recruited. Lots of smokers left out of this study.
I really do know some wonderful folks who are chain smokers. One may have saved my life with his intellect.
CNBC is the daily trial balloon that enough still believe in their fairy tales.
Silly TD,
Rule #1: Governments can do no wrong.
Rule #2: If governments do wrong, find a scapegoat. A nice speculator will do nicely.
Who gets blamed for inflation in oil prices? The big oil "windfall profits" of oil co's. But it is not the FED's fault for printing too many FRN$, no, no, no.
Who gets blamed for the financial crisis? The derivatives dept at AIG--they get taxed 100% of their bonuses.
But the USgovt is not at fault for repealing Glass-Stegall, no, no, no.
TD, get with the program, comrade!
Well you can't blame them. Once you give people an army they just have a hard time being wrong. I mean think about it. You get in an arguement with some guy. He disagrees with you. Now wouldn't you all in an 10 warthog to go hot on him? Wouldn't you? LOL
Tyler you be talking net. Meanwhile the total has over doubled in the last 12 months while net remains low.
Ever wonder about the counterparties when there is so much at stake?
Forgive me for repeating myself, but I have to mention this again: the CDS, along with the rest of those thousands of categories of credit derivatives, are nothing more than a Global Financial Virus developed by JPMorgan Chase, Goldman Sachs & Morgan Stanley (with input from Citi, BofA and DB) which they principally control.
They mined those minds with the math and physics backgrounds and came up with a financial virus to replicate the computer-type viruses then beginning to become prevalent.
Until people fully realize this, the corruption will be neverending.
(And no, I've never worn a tin foil hat, nor any tin foil lined clothing.)
Nothing wrong with the concept and responsible implementation of Credit Default Swaps. Why should an equity investor get to hedge their longs/shorts with options but a bond investor is SOL should a default happen? Its a perfectly viable security in theory. However, the complete lack of structure and regulation of the CDS market (no reserve ratios/margins for writers, questionable price discovery rather than being exchange traded) is the problem. Once these problems are addressed you start to bring sanity back to the financial innovation that has (arguably) helped spur growth in the developed world.
At least until the Central Planners speak again... :p
Jeez Tyler, I'd hate to think the fate of this country is in the hands of CNBC.
When dogs and cats start sleeping together...
http://www.express.co.uk/posts/view/159796/Dog-declares-his-love-for-a-w...
...they will when they share the same jokes.
Americans, for something completely novel, how about forming a government.
Nice!
We're gonna try that in November
You gots a problem with chainsmokers? So what, now Santelli is irrational? Keep your self-righteousness to your damn self, ya hee-haw.
(pls excuse the anonimity)
Smoking chains is perfectly appropriate for a dragster on ice!
Bernanke has told Goldman they must have atleast one investigation into their otherwise impeccable affairs; the blame shift on this one is easy.
Here here!!!
Tyler,
You have outdone yourself. Bravo indeed.
Now comes the "What If"
What If: The Financial Glitterati of the US, utilizing the "Calamari Cartel" and "The house of Morgan" are conspiring to destroy the rest of the world to hide their own mess and in the process enslave everyone else?
Can you tackle this Tyler? Or anybody?
Dollar Up.
Euro Down.
It always scares me to see how much of a compounded problem that governments can get themselves into.
The middle 80% that blow with the wind will endure many, many rounds of circular lynching before they realize that they know nothing!
I couldn't agree more! Gov't is aiming at the wrong targets, as usual. Kinda like the way they went about the war in Iraq, the initial offense (crisis response) was impressive but it went downhill from there.
classic intro, TD. Like "turd sandwich" and "giant douche" all instant classics*!
* "turd sandwhich" and "giant douche" are references to a Southpark episode and are the property of Southpark Studios. They may not be reproduced without written consent, unless found to be a fitting descrition of whatever.
You rock Tyler!
Why is it that I, a hardcore leftie, find the wondrous rants and comments here at ZH vastly more informative and useful than anything the hard left is doing? Or would be doing, that is, if they weren't all snoozing through this crisis of capitalism. the one they say they've waited for decades to occur.
It's inexplicable, that's what it is. But I'm sure glad ZH is here.
what is the hard left debating nowadays? Has Trotsky been rehabilitated yet?
The hard left is dead because whole Western left turned narcissist, so they are too lazy to manage factories,
kill enemies, it can affect their self esteem. The tactic now is to let Capitalists make money and then collect it with increasing taxes for any pet projects.
The Authorities are persecuting the CDS market players because these players hold up a particularly unflattering real-time mirror to stupid, reckless government policies.
Get used to the stifling of dissent. We are just at the beginning.
lots of tasty crumbs speeding between the shifting bids and offers, not knowing who's who into what in the closet.
Let's cut to the chase....
The paid media exercises a little too much free speech.....and just a little tainted....you got the money...I've got the time....
But....be thankful TD....
Because this is the major reason you business will collect the eyeballs....
The best food in town sells....
On the other hand...it is rather humorous to see paid people like Arthur Levitt try to hold a straight face...while getting his dough from Bloomberg....the SEC....and GS....
Levitt is the perfect example of what is truly wrong with the SEC....getting paid from both sides....playing both sides....
..........................
As far as the markets go.....the time is ripe to take the exchanges to another jurisdiction....ie Singapore....Switzerland....Hong Kong.....
This populism is getting old ....
Disagree with the thrust of this article & the comment by Tyler. $108bn is the amount that would have to be paid out if all the countries defaulted. And it cost the holders of this protection some amount money. But it isn't the end of the trade, it's only establishing one leg. Once they're long CDS, hedge funds can then begin selling the associated countries' bonds, and feeding the media frenzy that ensues & then further amplifies the problem (see today's WSJ about Spain as the bext shoe to drop). This in turn causes more bond selling, possibly more CDS buying. Rinse & then repeat as necessary.
As is said often, allowing parties to own CDS w/out a corresponding LONG position in the debt of the issuer - be it a corporate or a sovereign, is akin to allowing someone to take out fire insurance on a house they do not own. They are incentivized to hope for, or possibly cause, a fire to occur.
thanks ty;er for another great post. but - with all due respect - the fact that the pin is too small does not mean that it cannot burst a huge bubble. lio.
Whether the pin is short or long is not the issue if it is too dull and not sharp and to the point.
so concise but somehow speaks a thousand words.
You won't be talking so smart after the UK, France, Germany and Italy go down.
I prefer a one-on-one.
Of course the "NET" notional is zero or near zero, as their is a seller to every buyer. The only thing I don't understand why there is any non-zero number here. Show us the GROSS NOTIONAL.
I love this about naked CDS, that it's "...akin to allowing someone to take out fire insurance on a house they do not own. They are incentivized to hope for, or possibly cause, a fire to occur." What does "hoping for" a fire have to do with the probability that there actually IS a fire? Remember all, even if there were NO CDS, there would still be Greek bonds trading at very wide spreads, causing panic and fear, making it hard for Greece to sell new bonds. Should we require by law that Greek bonds trade only at par? Come on people, think.
Just goes to prove how politicians are so hypocritical and populists.
WSJ has an okay article on the subject:
http://online.wsj.com/article/SB1000142405274870447940457508720393028159...
HEARD ON THE STREET, by Richard Barley
from The Wall Street Journal.
Policy makers are increasingly laying the blame for Europe's sovereign-debt woes on the credit default swap market. But the really damaging speculation took place between 2003 and 2007, when governments could borrow cheaply.
I cannot believe that CNBC let Danny Dousche get away. He was such a good compliment to the squaking turkey Dennis. I disliked the What's Your Problem woman, but she was better than what they offer now, continual propaganda for the One.
CNBC was once pretty darned good. They tried to concentrate on actual business news.
Donny was too full of his adverted genius, props to him but not an economedic. The real MIA is RBI Eric Bolling. He was a trader who clanked when he walked..so natcherly he got too big for the schoolroom, props large.
TD, I think your are missing the point here.
(1) Net notional exposures are useful to understand the maximus loss sellers of protection could incur if the underlying reference entity defaulted. As far as market manipulation is concerned, they are irrelevant.
(2) Flows are more important to understand if a market is being manipulated. The DTCC provides data on single name flows, if you're interested. For Greece, the net new additions for the week ending 19-Feb amount to about $1.6bn notional. Assuming a 20% margin, that's about $300mn, or about 1/1000th of total greek debt outstanding.
(3) The fact that these amounts are SMALL and not LARGE means that the CDS market is much easier to manipulate than the cash market. The fact that sovereign CDSs are generally much less liquid than cash bonds makes things even easier.
(4) How do you make money in this trade? (A) Buy CDS putting up small amounts of money as margin, and push spreads wider as much as you can. Cash bonds will likely follow. (B) Buy large amounts of GGBs when Greece issues them at a steep discount, and lock-in the basis or take GGB net risk outright.
Hope this helps
To believe that governments understand the nature of the beast is simply wrong - ever since the days of Yes Minister the state has outsourced its previously internal advice to market participants who have of course their own agenda.
The Irish State has for example just 2 economists within its entire upper civil service network - they therefore rely on private banks for its economic advice and execution with predictable results.
The ratio of CDS relative to government debt indeed looks impressively unbalanced but I believe this is a false analogy as they are not comparable tokens. CDS are not money but are simply betting slips , government debt is the closest thing to real money within our admittingly flawed system
If you could somehow describe the ratio of the shadow banking industry as a whole which now includes all the major banks that were previously investment banks to government debt it may give a better understanding of the relative balance of power between non state entities and Governments.
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