• Sprott Money
    03/01/2015 - 23:51
    Clearly if Western governments were ‘merely’ drowning in debt-to-GDP ratios of roughly 100%, then theycould still argue that attempting to manage these debt-loads was legitimate rather than...

Credit Default Swaps

Tyler Durden's picture

Which Nations Are Next? The Credit Market Answers





The debate about the usefulness of sovereign credit default swaps (SCDS) intensified with the outbreak of sovereign debt stress in the euro area. SCDS can be used to protect investors against losses on sovereign debt arising from so-called credit events such as default or debt restructuring. With the growing influence of SCDS, questions arose about whether speculative use of SCDS contracts could be destabilizing - and this caused regulators to ban non-hedge-related protection buying. The prohibition is based on the view that, in extreme market conditions, such short selling could push sovereign bond prices into a downward spiral, which would lead to disorderly markets and systemic risks, and hence sharply raise the issuance costs of the underlying sovereigns. The IMF's empirical results do not support many of the negative perceptions about SCDS. In particular, spreads of both SCDS and sovereign bonds reflect economic fundamentals, and other relevant market factors, in a similar fashion. Relative to bond spreads, SCDS spreads tend to reveal new information more rapidly during periods of stress, admittedly with overshoots one way or the other. Given the current apparent 'stability' in many nations' bond market spreads, the chart below suggests an alternative way of judging what the credit market thinks - the volume of protection bid - and in this case some interesting names emerge.

 
Tyler Durden's picture

Guest Post: Debt = Serfdom





Debt-serfdom and the dominance of Financial Power are two sides of the same coin. Let's be clear about three things: 1. Too Big to Fail financialization is the metastasizing cancer that has crippled democracy and capitalism; 2. Financialization feeds on expanding debt and cannot survive without it; and 3. Debt is serfdom. Debt is the mechanism of the Financial Powers' dominance and the chains of our serfdom. Eliminate debt and you eliminate the foundation of banks' power and the financial bondage of serfdom. Though it would dearly love to, the State cannot force anyone to take on debt except as taxpayers. We do not have to remain debt-serfs, nor accept our servitude as unavoidable or fated. Debt = serfdom. There is another way to live, frugally, with only short-term debts that are paid off in a few short years. We either accept the consumerist-narcissist debt-serf programming or reject it. We are neither victims nor bystanders. The choice is ours.

 
Tyler Durden's picture

Guest Post: Gold Manipulation, Part 3: "The Systemic Risk Of Gold Manipulation"





This is the third and last of three articles we are posting on the price suppression of gold. In the first article we showed that, under mainstream economic theory, the suppression of the gold market is not a conspiracy theory, but a logical necessity, a logical outcome.  Mainstream economics, framed by the Walras’ Law, believes in global monetary coordination which, to be achieved, necessitates that gold, if considered money, be oversupplied. The second article showed, at a very high (not exhaustive) level, how that suppression takes place and how to hedge it (if my thesis is correct, of course). Today’s article will examine the systemic impact of this suppression and test the claim of the gold bugs, namely that physical gold will trade at a premium over fiat/paper gold, commensurate with the credit multiplier created by the bullion banks. (Hint - it is)

 
Tyler Durden's picture

Tempest In A Towering Inferno: JPM's Head CIO Trader: "Things Like This, It's Like The Twin Towers Falling Down"





On April 13, 2012 Jamie Dimon described the situation at the CIO as massively overblown and said it was just "a tempest in a teapot." A few days later, the head CIO trader, Javier Martin-Artajo, when speaking to the former JPM Chief Investment Officer, Ina Drew, had a less sanguine description: "and, and, you know, things like this, it's like the twin towers falling down." Let's agree to disagree and just compromise on "tempest in a towering inferno." But that's not the point of this post. The point is in the same transcript we learn that it was none other than Ina Drew who told Artejo that "it would be helpful, if appropriate, to get, to start getting a little bit of that mark back" and instructed the Spaniard to go ahead and "tweak" the daily P&L on the CIO portfolio by "an extra basis point." Nothing like your supervisor telling you to fudge marks just to demonstrate that the "curve is starting to trend."

 
RickAckerman's picture

Why Isn't Gold Higher?





My colleague and erstwhile nemesis Gonzalo Lira posed the question above in a recent essay, and it is indeed a most puzzling one.  Given that the world’s central banks — joined most recently by a shockingly reckless Switzerland — are waging all-out economic war by inflating their currencies, shouldn’t gold be soaring?

 
Tyler Durden's picture

"We Are Doneski Gorgeous!" - How Bond Trading On Wall Street Really Works





"Jesse Litvak arranged trades for customers as part of his job as a managing director on the MBS desk at Jefferies.  Litvak would buy a MBS from one customer and sell it to another customer, but on many occasions he lied about the price at which his firm had bought the MBS so he could re-sell it to the other customer at a higher price and keep more money for the firm.  On other occasions, Litvak misled purchasers by creating a fictional seller to purport that he was arranging a MBS trade between customers when in reality he was just selling MBS out of his firm’s inventory at a higher price.  Because MBS are generally illiquid and difficult to price, it is particularly important for brokers to provide honest and accurate information. The SEC alleges that Litvak generated more than $2.7 million in additional revenue for Jefferies through his deceit.  His misconduct helped him improve his own standing at the firm, as his bonuses were determined in part by the amount of revenue he generated for the firm." 

 
Tyler Durden's picture

The "Big Three" Banks Are Gambling With $860 Billion In Deposits





A week ago, when Wells Fargo unleashed the so far quite disappointing earnings season for commercial banks (connected hedge funds like Goldman Sachs excluded) we reported that the bank's deposits had risen to a record $176 billion over loans on its books. Today we conduct the same analysis for the other big two commercial banks: Wells Fargo and JPMorgan (we ignore Citi as it is still a partially nationalized disaster). The results are presented below, together with a rather stunning observation.

 
EconMatters's picture

President Obama:The Greek Politicians Won Elections As Well!





We are on the same path as Greece, and Mr. President, you need to recognize that being a true leader is not doing the popular thing but the right thing with regard to fiscal responsibility.

 
Tyler Durden's picture

2012 Year In Review - Free Markets, Rule of Law, And Other Urban Legends





Presenting Dave Collum's now ubiquitous and all-encompassing annual review of markets and much, much more. From Baptists, Bankers, and Bootleggers to Capitalism, Corporate Debt, Government Corruption, and the Constitution, Dave provides a one-stop-shop summary of everything relevant this year (and how it will affect next year and beyond).

 
Tyler Durden's picture

"The Shape Of The Next Crisis" - A Preview By Elliott's Paul Singer





"what you realize is that the lessons of ’08 will actually result in a much quicker process, a process that I would describe as a “black hole” if and when there is the next financial crisis.... Nobody in America has actually seen, or most people probably can’t even contemplate, what an actual loss of confidence may look like. What I’m trying to struggle with as a money manager, who really seriously doesn’t like to lose money, is how to protect our capital and how to think about the next crisis."

 
Tyler Durden's picture

Guest Post: Paul Krugman's Dangerous Misconceptions





In a recent article at the NYT entitled 'Incredible Credibility', Paul Krugman once again takes aim at those who believe it may not be a good idea to let the government's debt rise without limit. In order to understand the backdrop to this, Krugman is a Keynesian who thinks that recessions should be fought by increasing the government deficit spending and printing gobs of money. Moreover, he is a past master at presenting whatever evidence appears to support his case, while ignoring or disparaging evidence that seems to contradict his beliefs. Krugman compounds his error by asserting that there is an 'absence of default risk' in the rest of the developed world (on the basis of low interest rates and completely missing point of a 'default' by devaluation). We are generally of the opinion that it is in any case impossible to decide or prove points of economic theory with the help of economic history – the method Krugman seems to regularly employ, but then again it is a well-known flaw of Keynesian thinking in general that it tends to put the cart before the horse (e.g. the idea that one can consume oneself to economic wealth).

 
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